The second UK budget for 2015 planned for 8 July 2015 could include changes to the UK tax rules for non-domiciled individuals.

Non-domiciled individuals can elect to pay UK income tax on the remittance basis so that UK tax is only paid on foreign income or gains when they are brought into the UK. However for non-domiciled individuals who have been resident in the UK for more than seven out of the past nine tax years there is an annual charge of GBP 30,000 known as the remittance basis charge that they can elect to pay to continue using the remittance basis. For non-domiciled individuals resident in the UK in 12 of the past 14 years the charge is GBP 60,000 for 2015/16 (previously GBP 50,000) and for those resident in 17 of the past 20 years the charge is GBP 90,000 with effect from 6 April 2015.

During the UK election campaign for the 7 May 2015 election the Conservative Party manifesto contained a commitment to raise charges and tackle abuses. If these policies are turned into legislation it could become difficult for some UK residents to retain their non-domiciled status. In any event it is likely to become more costly to retain non-domiciled status.

A consultation on a change to the non-domiciled rules was held following an announcement in the UK’s Autumn Statement 2014. The government considered that the current rules make it too easy for non-domiciled individuals to arrange their tax affairs so that they only need to pay the remittance basis charge occasionally. The current rule is that an individual can opt in or out of non-domiciled status each year and therefore plan when it is appropriate to pay the remittance basis charge.

The government’s policy aim is to require individuals claiming the remittance basis to continue paying the remittance basis charge for a minimum period, perhaps three years, when they have been resident in the UK for at least seven of the past nine years.

One possible change to the rules could be to remove the possibility for a UK resident person to be viewed as non-domiciled only because that person’s father was domiciled in another country at the time of their birth. This issue was widely discussed during the election campaign. If changes were made to this rule the UK tax authority HMRC could argue that these persons have acquired a domicile of choice in the UK and bring them into the normal UK tax regime.

Another possible change to the rules could be to take away non-domiciled status altogether once a person has been resident in the UK for a certain number of years. Other policy options would include changes in the rules to encourage non-domiciled individuals to bring money into the UK. In the current climate the examination of non-domiciled individuals by HMRC is becoming more detailed and non-domiciled status is increasingly likely to be challenged.