The UK non-dom tax rules indicate that UK residents having permanent homes outside the United Kingdom do not have to pay tax to the UK government on any foreign income and similar capital gains from shares or selling a property. These rules are currently highly complex and are tough to understand by a non-specialist, especially if they are not well-versed with the financial terms of taxation. Simplifying these rules would overly benefit all individuals and make the taxation process simpler and more efficient.
In a recent meeting, the UK founder of the Tax Policy Associates, Dan Neidle, mentioned how the domicile concept is now outdated and should be either replaced or completely avoided. The concept’s existence makes it complicated for UK residents to pay taxes seamlessly. It also results in uncertainty, creating distress amongst the UK citizens. None of the accountants, consultants and lawyers that Neidle communicated with believed that the domicile concept is fruitful and needs to be kept in existence. In fact, all professionals believe that it needs to be scraped and should be replaced by something simpler, more straightforward, and uncomplicated.
What policy changes have occurred so far?
The most recent potential policy change has been associated with the labour party announcement of abolishing the non-dom tax status if shadow chancellor Rachel Reeves is elected. Reeves believes that it is not the right thing if only the top tier is benefited from these old non-dom tax perks. “With Labour, people who make the United Kingdom their home will contribute to this country by paying tax on their global income,” said Reeves in a public announcement. Cracking down hidden offshore trusts that help taxpayers pay fewer taxes will also be tracked upon election.
Since the non-doms are taxed only on an individual’s UK source of income and gains, it is not the right methodology to be followed as anybody gaining income outside of the country by residing in the UK is not obliged to pay taxes for the befit of the country providing them with the said resources.
Disadvantages of the UK non-dom tax rules with respect to inheritance (IHT) –
- Spouses can exchange assets with each other in any country without having to trigger an IHT charge
- Without a spouse exemption benefit, only gifts up to 650,000 pounds are tax-free
- IHT rate is as much as 40%, taking away most of the gains made
- IHT rules are different when assets are transferred from a UK-dom spouse to a non-UK dom-spouse and vice versa, making the entire process very complicated
Advantages of the non-dom tax rules
- Non-dom residents in the UK are only taxed on all the assets they inherit within the UK borders, and no assets are taxed that are outside the UK borders
- UK residents who have completed 15 or more years in the country can create a trust outside of the UK to make the assets that are established with this trust as domiciled to enjoy tax exemption
- If anyone living in the UK who is a non-dom individual, they can choose to not be taxed fully and only on a remittance basis
Policy changes in effect
Dan Neidle has mentioned that the ideal non-dom tax replacement is that if you have not been a UK resident before, only the first three years of residency at max can benefit you from the temporary non-residence regime. Dan feels that there is no point in layering another complicated level on top of the existing rules, and that is why things are to be kept as simple as possible.
Neidle is also aware of how the current financial crisis has affected people across the country along with the Brexit, and any changes in the tax have not resulted in money erosion currently.
Conclusion
The talks about the UK non-dom tax rules are still not confirmed, and only possible measures that can be considered are being talked about. Various replacements and how to make the process less complicated so that only the wealthy enjoy tax benefits are being taken into serious consideration. The UK tax authority believes that individuals are not solely driven by tax rates. This is why any positive change in the policy that benefits all levels of income earners in the country would be beneficial not only for individuals as they will better understand the taxation policies but for the country as a whole.
If you would like to learn more about UK non-dom tax rules and what they mean for you, request an introduction now by clicking the link below.
