PRE-BUDGET STATEMENT - NON-DOMICILES

The reaction of the media that the main proposals of Alistair Darling's first Pre-Budget were stolen from the Conservatives is most evident from new rules which will affect non-domiciled individuals. This is clear from the Chancellor's speech:

"Mr Speaker, non-domiciled taxpayers already pay about £4 billion on their earnings. Any proposal for change has to be fair, workable and affordable.

I have examined proposals to impose a flat rate annual charge of £25,000 on 150,000 non-domicile taxpayers which it is claimed could raise £3½ billion.

There are in fact only 115,000 registered non-domiciles. If the charge of £25,000 was imposed, only an estimated 15,000 would earn sufficient money abroad to make it worthwhile to maintain non-domicile status.

As a result, the combined effect of people paying this charge or changing their tax status would be revenue not of £3.5 billion, but £650 million a year at most. A shortfall of more than £2 billion."

The debate which Alistair Darling has addressed is the differing tax treatment that applies to UK residents who are not domiciled in the UK or who are not ordinarily resident in the UK. The remittance basis provides that such residents will be taxed on foreign income and gains only when they are remitted to the UK.

The Government's solution to ensure that everyone that lives and works in the UK pays their fair share is to impose a charge of £30,000 after an individual has been resident in the UK for seven years, increasing to a higher charge, yet to be confirmed, after ten years. It is easy to see why the headline writers are not convinced that there is any real difference in this concept when compared to the Conservative's proposed £25,000 charge.

The legislation which will come into force from 6 April 2008, will also end the automatic entitlement to certain personal allowances for individuals resident in the UK who are using the remittance basis. Following this change individuals will not be able to use both the remittance basis and any of the personal income tax allowances.

Changes to the rules to determine UK residence will also be brought in from 6 April 2008. From April, the days of arrival and departure will be counted when determining residence status of an indvidual. This measure could affect ex-pats that still regularly visit the UK. 

The proposals are subject to consultation once draft legislation is introduced towards the end of the year.