Here is a brief outline of what the Brexit vote in June might mean for the UK's non-domiciled residents.

This news service has published a number of commentaries on the fallout from the UK’s Brexit vote on the European Union. Among the issues arising is the status of non-domiciled residents in the UK. (See a feature article by WealthBriefing on the matter here.) This population group has already been affected by number of measures by the present and former governments, such as the introduction of annual levies on those wishing to keep worldwide assets offshore, and more recently the end, effectively, of permanent non-dom status. This article, by Neil Jones of Canada Life, looks at some of the details. As always, this publication welcomes readers’ views. This news service is also running a survey of wealth management professionals on the industry impact of Brexit. See more details here.

In March last year, the former chancellor of the exchequer, aka finance minister, George Osborne, announced changes to the way in which non-domiciled individuals will be taxed from April 2017 onwards. Since then we have seen a major change in the political landscape. The UK has decided that its future does not lie with the European Union and this has led to the appointment of a new prime minister, Theresa May, who in turn has replaced Osborne with Philip Hammond.
 
There is some debate about whether all the policy announcements made by Osborne will come true. Although we do not yet know the intentions of Hammond and May regarding the tax treatment of non-domiciles, we know what the government has announced so far and we also know that the country still has to reduce its public spending deficit. Estimates put this at around £19 billion ($25 billion) by the end of the 2016/17 tax year.

Current position
“Domiciling” is a legal concept and in the UK it is linked to the individual’s tax status. If a high net worth individual is domiciled in the UK, then UK inheritance tax is payable on his worldwide assets and he pays UK tax on his worldwide income and capital gains, subject to any double-tax agreement.

A “non-domicile” only pays UK inheritance tax on assets of his that are located in the UK and therefore assets held outside the country are not subject to that tax. This changes once the individual has been resident in the UK for 17 out of 20 years, as at this point he answers to the description of “deemed domicile” and UK inheritance tax applies to his worldwide assets, irrespective of where he holds them.

For income and capital gains tax, a non-domiciled individual does not pay UK tax on foreign income or gains as long as these come to less than £2,000 in a tax year and they are not brought into the UK. However, if income and gains total £2,000 or more then he can either declare these in the UK or elect to be taxed on the remittance basis. The non-domicile can keep his total income and gains away from HM Revenue & Customs in return for making an annual payment. This “remittance charge” is £30,000 if he resides in the UK for seven out of nine tax years, rising to £50,000 when he has been resident for 12 out of 14 years and to £90,000 for 17 out of 20 years.

Osborne's changes
Osborne said that from April 2017 onwards the following changes will occur:

- The deemed domicile rule will apply once a non-domicile has been resident in the UK for 15 out of the last 20 years, thereby making his whole estate subject to British inheritance tax earlier;

- The deemed domicile rule will be extended to include income and capital gains tax, meaning that the worldwide income and gains of those who are deemed domicile will be subject to income and capital gains tax in the UK. (The remittance basis will then only apply to previous years’ income and gains.) This will put a stop to people having permanent non-domicile status as they will no longer be able to shelter their worldwide income and gains from the British taxman; 

- Another change that will be brought in at the same time relates to those people who were born in the UK with a “UK domicile”. If this domicile was replaced by a new domicile of choice and then they subsequently return to the UK, claiming a non-domicile status, HMRC will immediately class these individuals as deemed domicile. All in all, these changes will reduce the tax advantages available to non-doms and those who are subject to the deemed domicile rule.

For people who have lived in the UK for many years, the process of moving business interests overseas or uprooting an established family unit may be too much. Some, though, may decide to base themselves in other jurisdictions. It is not an easy decision and the recent referendum vote for the UK to leave the EU adds another dimension to such deliberations.

Many commentators wonder whether these changes will actually happen. Yes, the UK government's workload will increase in the short term as it prepares for the UK to leave the EU and its trade negotiations with that body could take many years. However, the country still has a fiscal deficit and needs to increase its revenue from taxes. In addition to this, May has pledged to make Britain “a country that works not for a privileged few but for every one of us”. 

Hopefully, we shall learn more in Hammond’s autumn statement later this year. The job of managing a country is a balancing act, but I think it would be a brave man who makes his plans in the expectation that the government will not bring about the changes that Osborne previously announced.