Members of the Chartered Institute of Taxation (CIOT) have raised concerns about the government’s proposals to reform taxation for non-domiciles, as they fear it could lead to an unfair result for those born in the UK who spend most of their lives abroad, but later return.
A new Treasury consultation document has proposed that individuals born in the UK and classed as UK-domiciled at birth will not be entitled to claim that they are not domiciled for tax purposes while they are living in the UK.
For long-term residents of the UK, this new measure will mean that they can no longer claim to be not domiciled for tax purposes; effectively abolishing the permanency of non-dom status.
The document states: “The government… intends that any individual who is born in the UK and has a UK domicile of origin should not be able to claim non-dom status while they are living in the UK, even if they have left the UK and acquired a domicile of choice in another country.”
According to the CIOT, the introduction of the place of birth element of the rule introduces complexity into an already complex area.
“Among the new proposals, the stricter regime for those born in the UK seems unduly harsh,” said Aparna Nathan, Chair of the CIOT’s capital gains tax and investment income sub-committee. “Attaching such importance to a place of birth, which is clearly outside the individual’s control, and could be a matter of happenstance, is curious.
“As the proposal stands, a UK-born person who returns to the UK to look after ageing relatives or to take up a temporary secondment will become deemed UK domiciled from the first tax year,” Nathan added.
“As a result, they will have to pay UK income tax and capital gains tax on their worldwide income and gains, and UK inheritance tax on their worldwide assets. This seems an unduly onerous consequence of their place of birth combined with what might be a relatively brief period of UK residence later in life.”
The government is expected to release its final legislation on non-dom tax rules in the near future.