Changes to residence and domicile clauses in Finance Bill

The Finance Bill this year introduced amendments to the legislation concerning the residence and domicile taxation rules. What changes were made to these clauses during the Committee stage of the Finance Bill and are any further amendments expected?

What did the original draft legislation propose?

The original draft of the 2008 Finance Bill made several amendments to the legislation concerning the residence and domicile taxation rules including: the residence test, the remittance basis, the taxation of chargeable gains, notification requirements for foreign trusts, offshore funds, the accrued income scheme and the transfer of assets abroad.

These changes were originally announced in the Pre-Budget Report in October 2007. The Tax Story of the Week from 24 December 2007 provided details on some of these changes and can be accessed by clicking here.

What changes were made during the Committee stage of the Finance Bill?

The Government made 135 amendments to the clauses on residence and domicile during the Committee stage of the Finance Bill. This has led to criticism that the proposals had not been properly thought through.

The main changes in respect of residence and domicile concerned the following:

• Provisions relating to Share Incentive Schemes and Save As You Earn schemes
• Employment-related securities acquired by resident but not ordinarily resident employees
• Time limits for making the claim for the remittance basis
• The calculation of the £30,000 charge as income tax or capital gains tax
• Treatment of mixed funds - including anti-avoidance rules for mixed funds
• Clarification of the treatment of mortgages
• Extension of the provisions relating to offshore income gains
• Rebasing rules for trustees
• Property treated as remitted to the UK

During the debates, the Financial Secretary to the Treasury, Jane Kennedy, said the Government had listened to and addressed the concerns raised following the publication of the draft legislation. As a result, the Government's estimate of the number of non-domiciles (non-doms) who might leave the UK has fallen by 400 (from the original estimate of 3,000). However, when challenged on where these figures came from Jane Kennedy was not able to provide a great deal of clarification.

Are any further changes expected?

The Government has committed to consider a number of remaining issues prior to the Report stage of the Finance Bill, including:

• Mixed fund remittance rules
• Offshore mortgages
• Whether the rebasing election for offshore trusts should be automatic

There was also a suggestion that the Government is still open to introducing a statutory residence test in the future but it will not be part of this Finance Bill.

Eric Williams, a Tax Partner at Grant Thornton says: "As a number of wealthy non-doms have signalled that they may leave the UK, the Government must now be seen to implement its policy, but also strike a balance of fairness. For example, the Government is seeking to ensure that the £30,000 charge does not mean that non-doms are subject to double taxation in the UK and elsewhere on their foreign income and gains. The watering down of the original draconian proposals has, however, left the door open. Significant tax savings are still there for non-doms with the right planning."

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