In the run up to the snap general election, the UK government made the shock decision to delay long-anticipated reforms to how non-UK domiciles are taxed, which would have meant that those who have resided in the country for more than 15 of the past 20 tax years would automatically be deemed UK-domiciled.
Non-dom status for Britons who return to the UK but claim to have a permanent home abroad was also set to be removed.
The freeze will also apply to proposals to close the IHT loopholes used by non-UK domiciles to purchase property in the UK via offshore shell companies, which HMRC is still consulting on.
‘Very difficult position’
Robert Pullen, senior manager at accountancy firm Blick Rothenberg, said non-doms are in a “very difficult position” following the last-minute delay, particularly if the new rules are postponed until next year.
“Deferring the rules being introduced until 6 April 2018 would be disastrous for those non-domiciled individuals who were readying themselves for the changes and arranging their tax affairs accordingly,” he told International Adviser.
Meanwhile, George Bull, senior tax partner at international audit, tax and consultancy firm RSM, said dropping the overhaul of the non-dom system altogether could in fact penalise taxpayers further.
“It might be thought that withdrawing the legislation would be good news for non-doms, since the proposed new rules are stricter than the existing ones. In many cases, however, this will not be true.
“Because the new rules were due to apply from 6 April 2017, many non-doms have acted already based on the draft legislation, by selling assets relying on a rebasing relief, and by bringing funds to the UK relying on a cleansing relief.
“Both reliefs have currently been withdrawn, potentially creating large tax bills for the people who relied on them,” he told IA.
‘Confidence damaged’
Bull added that retrospective changes in tax law are avoided by governments, as it “destroys confidence, and discourages people from acting for fear of discovering after the event that they have created a tax liability”.
“In the case of the non-dom changes, the opposite position may apply. Unless the legislation is introduced with effect from 6 April 2017, taxpayers will be punished for acting in good faith based on the law as they had every reason to believe it would apply.
“We will have to hope that the long term damage to confidence this would cause will be recognised by the new government, and that it is not convinced by the prospect of a windfall tax yield to punish taxpayers for believing that they could rely on what politicians told them,” he said.
UK election
There are mounting fears that British prime minister Theresa May is unlikley to reinstate some key tax changes dropped from the Finance Bill 2017, including the non-dom reforms, after she lost the Conservative majority in last week’s general election.
The election resulted in a hung parliement with no political party gaining enough seats to form a majority government. May is currently hashing out the details of a ‘confidence and supply’ informal arrangement with the Northern Ireland Democratic Unionists Party, which will allow her to stay in office with a Conservative minority.
