PBR – domicile

After 20 years of inaction by successive governments, we now have proposals to change the rules for the taxation of non UK domiciliaries. Doubtless, some commentators will be ecstatic. Others will be concerned that, at a time when the City is turning, this might not be the best of times to find out what happens if a government removes the tax breaks it has so brazenly used to encourage people to come to the UK in the first place (most particularly the Americans, many of whom are already thinking of heading home when their current administration changes in barely 15 months time).

However, and regardless of whether you're a thumbs up or thumbs down person on the issue, there can be little doubt that it is an extremely complex one to address; even in the law drafting, let alone in terms of the behavioural and economic consequences. If proof of this is needed, then why has no government over the past two decades taken the opportunity to collect all that supposedly easily available, extra tax from these foreigners ?

So, it has to be a worry that we have a date for the change, of 6 April 2008, only the broadest outline of the proposed changes, no draft legislation, doubts over whether it will be EC law compliant, and another consultation to be shoe horned into only a few weeks. Worst still, if that were possible, the legislation will take effect before it has been debated in parliament and receives Royal Assent. Why do lawyers who become politicians all of a sudden lose all respect for the process of law making ?

Notwithstanding, if the current proposals become law, the remittance basis will continue to be available to those foreign domiciliaries who have yet to be UK resident for 7 years. Importantly, however, the 7 years will not start from April 2008 but will include tax years prior to 2008 also, thereby making anyone who has been UK resident since 2001-2002 immediately subject to the new rules. These new rules will deny the individual the benefit of the remittance basis unless a fee is paid of £30,000 (presumably, given the annual nature of taxation, on a tax year by tax year basis). The less costly alternative, especially for those nationals from countries where taxpaying is seen as a voluntary gesture by the stupid, will be to keep the £30,000 and declare that they are happy to pay their tax on an arising basis because they do, regrettably, have no non-UK income or gains !

There will also be some fine tuning of the existing remittance rules, such as the removal of the ceased source rule for income, legislation to counter the parking of assets in offshore structures and the extension of anti-avoidance measures. No small wonder, then, that the government is buying time before it releases the draft legislation !

There is no mention of any changes to the inheritance tax rules for non-doms.