'Non-doms' or Non-Domiciled foreign individuals resident in the UK can breathe easily again, as for yet a further year the Chancellor put off any change to the highly favourable tax regime they enjoy.
The Treasury said: "The Government is continuing to review the residence and domicile rules as they affect the taxation of individuals and will proceed on the basis of evidence and in keeping with its principles. It would welcome further contributions to the debate, which will then be taken forward by the publication of a consultation paper setting out possible approaches to reform."
The Inland Revenue last year set up five regional offices to collect personal details of non-domiciled workers, including names and national insurance numbers. It also sent out letters to around 6,500 employees asking for information on “inward expatriate employees who are non-domiciled”.
A Treasury paper published in the April 2003 budget revealed that the Inland Revenue has 16,000 individuals on its database who declared a total income of £800 million which stayed out of the Revenue’s clutches by being remitted overseas. However, the accounting profession believes the figure is in reality much higher. Some estimates have put the annual tax loss to the Treasury from the current tax rules at £5 billion, though others have argued the exodus of foreign workers and businesspeople resulting from a change in the rules would deprive the government of double this amount.
The concept of domicile, which is unique to the English-speaking common law jurisdictions, attaches to a person's original home country, and cannot be changed unless the person moves their whole life, family and base to another country, with the intention of remaining there permanently. Few 'visiting' residents will therefore have a UK domicile.
Foreign investment income is exempt from tax for such individuals as long as the income is not remitted to the UK. Therefore they can safely make offshore investments knowing that the income will be reinvested without deduction - the ideal way of turning income into capital without taxation.
American citizens, and nationals of the very few other countries that tax world-wide income on the basis of citizenship, won't be able to take advantage of this UK possibility, but for all other nationals, it is available. This rule has led to many foreign celebrities making the UK their home for tax purposes.
The most likely reform, according to experts, would be to impose a limit on the number of years that an individual could remain resident in the United Kingdom but not domiciled there for tax purposes. After the expiry of that period, they would be obliged to pay tax in the UK on their overseas income.
Perhaps surprisingly, there has been some support for Gordon Brown's plans from some in the accounting and tax consulting professions. Many organisations are supporting the prospect of reform in this area of tax law, in the hope that new legislation will make the domicile rules simpler. Also, by taking a proactive approach to the reforms, they are hoping to stave off more radical proposals that Gordon Brown may be considering.
