This article intends to have a look at the areas of UK taxation affecting non UK domiciled individuals.  It will also look at the budget, which although bland did have a few pointers to the way things are likely to go in the future, also the points missing from the budget are more a reflection of the current climate, then the Governments change of heart.

Firstly, the government desperate for tax revenue is allowing HMRC to run a very successful campaign to make legal tax avoidance anti social and morally wrong, this is born out by the number of celebrities being targeted and shamed for following perfectly legal practices and the large corporates being vilified for doing the same.  Unfortunately, part of this campaign is based on buzz words and Non Dom is right up there. The individuals concerned are held out as legitimate targets hiding often only perceived wealth in complex structures.  Add to this the prevalence of creeping legislation such as the reducing limits on ATED and the attack is coming from all angles.

Residence and Domicile

There were no changes in this year’s budget in this area, but several of the matters raised in last years’ budget have just kicked in with effect from 5th April.

There is not much to say about residence as the SRT is starting to settle down and some of the definitions are becoming clear, we still don’t have much case law as such to rely on as the legislation is still fairly new.

The changes to Domicile however are now starting to bite and as always the Government want a bite at both ends of scale, the issue they had encountered in the past was whenever they tightened the law one way it relaxed it at the other end, for example if they made it harder to shift a UK domicile for a leaver they would find it harder to impose a UK domicile of someone arriving in the UK.  Also case law was very specific in a lot of cases meaning it was a difficult area to work in.

They have of course got round this dilemma and the new legislation introduced in the last budget is fairly draconian.

Let’s start at the beginning, when you are born you acquire a domicile of origin, this is in most cases your Fathers domicile. If you wish to change this, you have to cut all ties with the that country on a permanent basis and also acquire another domicile of choice.  This can’t be done in Dubai for example as most work visa’s don’t allow you stay for retirement.  The change has to be permanent and total, it does not matter if you have not set foot in the country for 50 years if you still have ties there or have not acquired a new domicile of choice you are still domiciled there.

So why does this matter, the main reason is Inheritance tax in the UK is based on domicile and not residence, if you are UK domiciled you are liable to IHT on your worldwide assets regardless of where you are resident and where the assets are based.  The new rules affect Non Doms in two ways: -

Firstly, if you have been in the UK for 15 consecutive tax years you will be treated as deemed domiciled in the UK and as such all UK taxes will be applied to your worldwide wealth and assets, there is no more remittance basis or Inheritance tax exemption.  It is worth noting that the year of arrival is counted even if it’s a split year and the current year is included in the count, so this could apply after 13 years here.

Secondly, if you leave the UK you are treated as UK domiciled for six years following the date of departure.  Even if you acquire another domicile in the meantime.

Further to the above points there is currently a consultation going on which if accepted will impose IHT on all UK property, regardless of the domicile or residence of the owner.

Taxation of residential property

This section is really an update on previous changes in legislation, which are effective from 5th April 2015 and 2016 in some cases.  There is also a concerted attack on second homes through restricted lending, SDLT increases, and restrictions on tax reliefs, rumour has it that this is because the government is trying to manipulate the housing market to live up to his promises on housing availability in the UK, where he is currently well behind target.

From 5th April 2015 non UK tax residents have been liable to capital gains tax on UK residential property, sold after this date: -

Only gains from this date are taxable.  The gain can be calculated by either one of two methods of calculation, either by reference to a valuation on 5th April 2015 or by applying a time apportionment of the gain over the entire period of ownership. The rate of tax is currently 18% or 28% for higher rate tax payers and a UK Personal allowance is currently available.

A return has to made at the month end following the month of completion, and the tax is payable on this date, unless you are already part of the self assessment system in which case the tax is due as normal on the 31st January following the end of the tax year.  With effect from 2019 a payment on account will be required 30 days after the date of sale.

Three other property related matters

There is now a restriction on the amount tax relief you can claim in respect of mortgage interest, prior to 5th April you could claim the relief at your marginal rate of either 40 or 45%, however from 5th April this is restricted on a sliding scale, dropping each year until the point when you will only be able to claim at the basic rate currently 20%.

Secondly with effect from the 1st April 2016 there is a 3% levy on SDLT for the purchase of a second home or a buy to let property.   The levy applies at every different band, including the 0% band.

Further the ATED limit is now reduced to £500,000, so if you own an enveloped property (held in company) you will be liable to an annual charge, this was meant to be a tax for high value property, but over the past few years the definition of high value is eroded to this level, which certainly in London is not high value.

The Budget

So what has happened in the Budget?  On the face of it very little to impact on Non Dom’s.  There were the normal changes in the rates and allowances and the introduction of a lifetime ISA for those aged between 18 and 40, which the government will top up each year.  The fund can only be used to buy a first home or as a retirement policy.  This is the first move towards a total revamp of the UK pension market

There is also a nasty hidden away in the budget for off shore property developers, who in the past have been able to shield profits on UK property development, once the consultation is complete these profits will be taxable in the UK.

Services we offer

We are pleased to able to offer the following taxation based services: -

All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.

  • A General tax consultation and/or specific tax advice;
  • Tax planning for your general situation or for a specific transaction;
  • Registration for National Insurance and Unique Tax Reference numbers;
  • Preparation and submission of annual self-assessment returns;
  • Preparation and submission of return for overseas landlords;
  • Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.

For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email