FT.com | 2017-03-25
‘Non-dom’ tax change to hit thousands of returning expats
Thousands of British expats face significant bills if they return to the UK after new “non-dom” tax rules come into force in April.
The finance bill published this week will pare back the tax perks offered to people whose permanent home or“domicile” is outside the UK, imposing new limits on their ability to keep offshore income out of Britain’s tax net.
Permanent non-dom status will be abolished for anyone living in Britain for at least 15 of the past 20 years. Non-dom status for Britons who return to the UK but claim to have a permanent home abroad will also be removed.
The changes have caused consternation in Hong Kong and Singapore, where large numbers of Britons work in finance and legal services.
Carlo Gray, head of Buzzacott, an accountancy firm in Hong Kong, said: “We have had a flurry of inquiries recently in respect to Brits returning to the UK for work or for their children’s education and these new rules are resulting in them having to think very carefully about the implications and their long-term plans.”
The measures, introduced to tackle what the government has described as “fundamental unfairness” in the non-dom regime, amount to the biggest changes to the tax rules since their introduction in 1914.
Martin Rimmer, head of tax for south-east Asia at the Fry group in Singapore, said the reforms would affect expats who had to return to Britain unexpectedly, perhaps because their parents were unwell. “Life throws curve balls,” he said. “I think it will affect thousands, if not tens of thousands, of people whether they know it or not.”
Expats affected by the change were born in the UK, started life with a British “domicile of origin”, but went overseas and put down roots, keeping their wealth outside the scope of the UK tax net even if they subsequently returned to the UK.
If they now return to the UK, they will be taxed on income and gains from any offshore trusts or companies they owned. They will also fall into the UK inheritance tax net, subject to a 12-month grace period.
A prominent example of a returning non-dom is Stuart Gulliver, chief executive of the HSBC banking group. Mr Gulliver, 58, who was born in Derby and educated in Oxford, acquired a tax domicile of choice in Hong Kong after he moved there with HSBC in 1980. This allowed him to keep his offshore income, including from a confidential Panama company, out of the British tax net.
Last week, he lost a High Court battle to stop HM Revenue & Customs investigating how he had kept a tax domicile in Hong Kong since 1999 despite working in Britain for the past 13 years. The revenue has asked him to answer 123 questions and provide 33 categories of documents relating to his personal and professional life since 1981.
Mr Rimmer said more than 100,000 British citizens emigrated every year but changes to the domicile rules would affect only a small proportion. “The extent to which it matters depends on wealth and the extent to which they know there is a weapon that protects ½ them from tax,” he said. People who were not “tremendously wealthy” would tend to use simpler strategies to reduce their tax bills.
Benjamin Heaton of PwC, the professional services firm, in Singapore said:
“Moving country is a huge decision, and understandably, tax would only be one of many factors in making this choice. Quality of life, employment opportunities, climate and a good education system could all be factors which one would consider before tax. With that said, clearly the new rules will have a significant impact on ‘returning UK doms’ with respect to income, capital and inheritance taxes in the UK.”
The changes in numbers
83,200: individuals who told HM Revenue & Customs they had a foreign “domicile”, meaning they did not view the UK as their long-term home, in 2014-15 53,300: users of the “remittance basis”, a tax break for non-doms which means they are taxed only on foreign income and capital gains when they are remitted to the UK
£995m: extra revenue that will be collected by April 2021 from removing nondom status from those living in the UK for 15 of the past 20 years and from Britons returning to the UK despite having made their permanent home abroad
3,700: non-doms who had lived in the UK for more than 12 tax years in 2014-15 and are likely to be hit hardest by the reforms
£147,297: average income tax paid in 2014-15 by the 3,700 longest-staying nondoms in Britain
£245m: to be collected by April 2021 by applying inheritance tax to UK residential properties held by non-doms through offshore companies.
Article first seen on FT.com