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Patricia Mock, private client services director at Deloitte, comments on the Chancellor’s proposed sweeping changes to the non domicile regime, perhaps spurred on by Conservative proposals last week.

“This has been a thorny subject for the Government, as the matter has been under debate for several years without change being made. Mr Darling has now proposed a flat rate charge for non domiciles of £30,000, which will apply after seven years UK residence.

“The Chancellor calculates that 15,000 taxpayers would find it beneficial to pay the levy, and on this basis the estimated yield is about £500 million per annum, although it will be higher 2009/10 as the new changes work their way through the self assessment system.

“The new rules come into force from 6 April 2008 and will apply to individuals after they have been resident for seven years. Taxpayers who have already clocked up seven years of UK residence on 6 April 2008 will be immediately affected.  There is a suggestion that higher charges will apply to those who have been here for more than 10 years, although there will be consultation on this matter.

Tightening of loopholes
“Coupled with the change is a tightening up of loopholes and anomalies, which have allowed people to manipulate the rules. We will need to wait for the legislation to assess the precise impact, but it seems that overseas structures such as trusts and companies will be affected, and this is likely to affect many wealthy non doms. There will be a consultation process on the details of the change.

“The mechanism for counting days in the UK for residence purposes is also to be put on a statutory footing. This means that weekly commuters to the UK will find it harder to be treated as non resident.

Winners and losers
“Doubtless there will be winners and losers from the proposals. It will be open to taxpayers to have all their income assessed on an arising basis if this is cheaper than paying the £30,000 charge. However, taxpayers with more than about £75,000 of offshore income per annum are likely to be better off paying the charge. For offshore gains though, the rate going forward will be only 18% under the new proposals, so gains of over about £170,000 will be needed to be better off paying the charge.

“The Chancellor suggested that the seven year period before the new rules affected non domciliaries will be sufficiently long to retain the competitiveness of the City, where he believes that many expatriates are working on a short term basis. It remains to be seen whether he is correct and how the changes will affect long term resident non domiciled individuals.”

Notes to editors:

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