Edwin Coe’s stakeholder feedback on Non-Dom proposals

On 29 July, within weeks of being elected, the Government published an updated policy paper on its proposals for reform of the tax rules affecting non-UK domiciliaries (‘non-doms’) and others who have been outside the UK for a number of years.  The policy paper, which was updated on 8 August, can be found here.

The proposed changes are, as expected, quite dramatic, though there is no draft legislation as yet and there are many details which remain to be decided.  The Government announced that it would not carry out a formal policy consultation but instead invited comment on the proposals from interested parties and stakeholders.  The time frame for this was very short, only a month after the update was published.

Edwin Coe’s Private Client and Tax teams submitted the attached report by way of our response.  The full report can be found here.

 In summary, we welcomed certain aspects of the proposals:

1.  The core principle of changing to a tax regime based on residence rather than domicile will, we believe, help bring certainty and reduce complexity for taxpayers.
2. By contrast to the remittance basis, the new foreign income and gains (‘FIG’) regime reduces the disincentive in respect of bringing foreign income and gains to the UK.   We hope there will be proposals to encourage this further, such as by extending the window for tax-free remittance of income and gains which arose prior to the new regime (the ‘temporary repatriation facility’).

Overall, however, our view is that the proposals are flawed.  We are also concerned that such drastic proposals were being rushed through.  There has been very little consultation and there is scant evidence on which to predict their effect.  Evidence from previous reforms to the taxation of non-doms in 2008 and 2017 is of limited relevance, as the scope of these reforms was much narrower.   We would recommend a more cautious approach, with appropriate consultation and review.  The economic impact of the changes, particularly when combined with other factors affecting the country, could be detrimental.  We simply don’t know, and this does not seem a good position from which to make such major changes.

We also look at the stated objectives of the proposed reforms:

Objective 1 – to address unfairness in the tax system

We note that in certain respects the proposals may achieve this, but that in their current form they are also likely to give rise to some very unfair tax consequences, including double taxation.  Adaptations will need to be made in order to address this.  These will need to include temporary (‘grandfathering’) provisions to enable individuals to reorganise their affairs, so that they avoid double taxation, without the reorganisation itself giving rise to punitive tax consequences.   People will not invest in a country where they are encouraged to arrange their affairs in a certain way, then later taxed punitively for doing so.

Objective 2 – to ensure that everyone who is long-term resident in the UK pays their taxes here

We believe that the proposals should achieve this, though the reforms contain disadvantages for certain individuals which extend well beyond the policy objective.    The proposed 10 year period after which individuals become fully within scope of inheritance tax (IHT) will target not only long-term residents but also medium term residents.  The proposal to keep these individuals within the scope of IHT for 10 years after leaving the UK targets former UK residents for what is likely to be considered to be a punitive length of time.

Objective 3 – to introduce an internationally competitive system, attracting the best talent and investment to the UK

In their current form, we believe the proposals will clearly fail to achieve this.  Numerous competitor countries have far more attractive regimes and we will drive away talent and investment at just the time we really need it.  We recommend changes which we believe would help to achieve this.

We are happy to advise in relation to the proposals, and to assist with queries, either before or after the 30 October Budget.  Please contact any member of the Private Client and Tax teams listed here should you require assistance.

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