Changes to UK Non-Domicile Status

Published 22 January 2016

What is non-dom?

Non-Domicile also known as non-dom, is a UK tax status for individuals who do not intend to make the UK their permanent home, whether currently tax resident in the UK or otherwise.
For instance, it is possible to be a UK resident tax payer but UK non-domicile. To do so, one would be required to demonstrate that they did not intend to reside in the UK permanently but instead were planning to make a permanent home elsewhere.

Individuals born outside of the UK who have moved to the UK for work before returning home may be UK non-domicile.

UK citizens from birth who have left the UK and are no longer UK tax payers may still be deemed domicile in the UK, unless they could demonstrate that they did not plan on returning to live in the UK.
The advantage of being UK non-domicile is that it allows individuals to achieve favourable tax treatment, in particular, with regard to inheritance taxes and non-UK income and gains.

What’s changing?

In the UK summer budget of 2015, George Osborne set out his intentions to radically reform the non-dom tax status.

Mr Osborne’s proposals will remove a number of tax advantages currently enjoyed by those treated as non-doms with effect from April 2017, and will abolish the entitlement to permanent non-dom status.
This will include changes to the existing remittance scheme for individuals that enable the reduction of taxation on foreign income and gains for UK tax resident non-doms as well as several inheritance tax benefits currently enjoyed by non-doms.

The change will impact those who have been resident in the UK for 15 or more tax years out of the previous 20, and those born in the UK to UK domiciled parents if they leave and subsequently return to take up residency in the UK.

What’s the reason?

The UK Government believe the changes will see an increased tax take of £1.5billion, but the main reasons for the changes would appear to be political. The non-dom issue has been raised (often inaccurately) in many media reports during and since the 2015 general election campaign and the resulting public pressure to reform the non-dom system has led to the proposals announced recently.

What’s the impact?

Persons affected will include those who currently claim the non-dom status and have lived in the UK for 15 tax years out of the previous 20 years as well as any non-doms who were born in the UK to UK domiciled parents if they leave and subsequently return to take up residency in the UK. In both instances, these individuals will lose the right to claim the non-dom status.

As a result, these individuals will lose the ability to opt to pay UK income tax only on foreign earnings remitted to the UK, and from April 2017 will be required to pay UK income tax on their worldwide income.
In addition, the risk of their entire estate becoming liable to UK inheritance tax will also significantly increase.
Several sources have raised concerns that this may result in mass exodus of non-doms, who it is widely acknowledged make a significant contribution to UK tax revenues.

How Peregrine can help
Those currently treated as UK non-dom may wish to consider alternative means of protecting their assets from taxation in the UK.

With a base in the Isle of Man and working with a professional network of contacts with a global reach, including UK tax advisors, Peregrine is ideally placed to assist individuals in the planning and execution of legitimate tax mitigation strategies.

For more information about the changes to UK non-domicile status, please contact Nick Kelly at nkelly@burleigh.co.im or call +44 (0) 1624 626586.
Peregrine Corporate Services Limited is licensed by the Isle of Man Financial Services Authority