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 winter of discontent of UK
domiciled and resident Brits to see their peers returning from
abroad after a period of non-domiciliation, 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 emigration 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.