Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

UK Finance Bill 2017: "Non-dom" proposals omitted for the moment

April 25th 2017

As part of a general pruning process, HMG has decided to omit several budgetary proposals from the Finance Bill for 2017, on the basis that, pre-election, it would be inappropriate to pass these through Parliament without an opportunity to debate them. It is quite likely that these will be reintroduced in a later Bill September.

These include the following proposals affecting "non-doms":

clause 41: Deemed domicile for income tax and capital gains taxation (Schedule 13 is removed)

clause 42: Deemed domicile for IHT purposes, including the proposal to treat individuals returning to the UK who had a UK domicile of origin as if they had never acquired a foreign domicile of choice;

clause 43: Settlements and transfers of assets abroad: value of benefits (Schedule 14 is removed); and

clause 44: IHT on overseas property representing UK residential property (Schedule 15 is removed).

A great deal of work went into these proposals, which originated in the 2015 Budget, so it is unlikely that they will be dropped, and will most likely be reintroduced after the election for fuller debate. Probably in September 2017 with the original timetable for staggered introduction, if past practice is anything to go by.

The full explanation of these provisions can be found at the Government's Explanatory Notes

I will address one "evil" further down.

The main issue post-election will be whether the Conservative Government still considers it to be in the nation's interests to incite the wealthiest and revenue rich individuals to leave the country and risk losing the not inconsiderable pêrcentage of tax receipts from the non-doms currently "resident" in London and elsewhere.

Certainly the proposals to "refuse" the non-domiciliary status of those returning to the country from abroad will probably deter many from doing so.  To return would mean that any capital acquired whilst abroad and placed in foreign mechanisms equivalent to trusts would then fall to be taxable to IHT as if the individuals were domiciled in the United Kingdom when these were constituted.

Whilst one could understand the feeling of miscontent of UK domiciled and resident Brits to see their peers returning from abroad after a period of non-domiciiation, with foreign assets sheltered abroad or "offshore", that is frankly pure self-centredness.  Any emigration implies risk, and of failure abroad.  To tax the fruits of that emogration when the UK economy was unable to give these individuals the economic space and potential to do what they did abroad, as if they had never left  makes no sense. Those alive in the 1980s will remember the mess.

The legislation recognises a potential evil  in that it distinguishes between those born within UK with a UK domicile of origin, and those born outside the UK with a parent domiciled within the UK who transmits their domicile of origin under law to their children.

However, does it go far enough? My point is that it does not go far enough in mitigating the conflict between the legal concept of domcile, its use for tax purposes, and the inherent contradiction with residence.

Take a married couple in England, both with domiciles of origin or choice within the United Kingdom , who have a child who is born in the United Kingdom, with a UK domicile of origin.
The parents then decide to leave the country permanently with no intent to return, and take the child with them during his minority. In this example, they would remain abroad.
The child therefore falls within the proposed deeming definition, not only for IHT, insofar as any settlements made by them or on their behalf, but also in relation to Income Tax and Capital Gains Taxation. Were that child to return to the UK for any reason, for a short term basis, even having an intention to go back abroad, the child therefore falls into the scope of the future amended deemed domiciled rules. The fact that the child might have obtained a domicile of choice abroad before arriving in he United Kingdom is irrelevant under the proposal.
Whilst it is understandable that those claiming a loss of their domicile of origin to go abroad and resettle their assets should not be allowed back in with impunity, does that really apply to the example which I have cited?
This example will affect many children abroad, who will not even have had the right to vote upon those passing it.
The legislation needs rethinking and a further debate prior to its reintroduction doubtless in September.