Taxation of non-domiciles: the 2008 reforms

Historically an individual’s liability to pay tax in the UK has been determined by three tests: whether they are resident, ordinarily resident, and/or domiciled in this country. Broadly speaking, a person’s domicile is their permanent home. Individuals who live in the UK but have domicile elsewhere are liable to UK tax on overseas income and gains only to the extent that such funds are either received or ‘remitted’ here – that is, transmitted or brought into this country. This is called the remittance basis of taxation.

The use of the remittance basis by wealthy individuals living in this country to shield their assets from UK tax has been controversial for many years.[1]

In April 2003 the Labour Government published a discussion document as part of a review on reforming these rules.[2] The review continued over the next four years without any further details being published.

Subsequently in his Pre-Budget statement on 9 October 2007 the then Chancellor Alistair Darling announced that the Government would consult on introducing a new annual £30,000 charge which non-domiciles would have to pay if they wished to be taxed under the remittance basis.[3] A number of other changes would be made to the residence and domicile rules. All of these provisions would apply from 6 April 2008.[4]

The Labour government launched a consultation on 6 December 2007, asking for views “on the implementation of the reform package” and whether there was a case “for any further changes to the rules on the treatment of non-domiciles to be considered.[5] HM Revenue & Customs (HMRC) published draft legislation in January 2008 and further clarification of the government’s aims in undertaking this reform the next month.[6]

Finally in his 2008 Budget speech on 12 March 2008 Mr Darling confirmed that the new charge would be introduced from April 2008, although there would “be no further changes to this regime for the rest of this Parliament or the next.”[7] Provision to this effect was included in the Finance Act 2008 (specifically sections 24-5 and schedule 7).[8]

This briefing discusses the background to the Labour Government’s reforms to the taxation of non-domiciles. A second Library briefing discusses developments in the taxation of non-domiciles since then.[9]

Notes:

[1] For example, “How the richest man in Britain avoids tax”, Guardian, 11 April 2002; “Tax savings: only the rich need apply”, Observer, 22 April 2007

[2] HM Treasury (HMT), Reviewing the residence and domicile rules as they affect the taxation of individuals: a background paper, April 2003

[3] HC Deb 9 October 2007 c171

[4] HMRC, Pre-Budget Report Note PBRN18: Residence and domicile review, (PDF) 9 October 2007

[5] HM Treasury press notice, Pre-Budget Report consultation documents published today, 6 December 2007. Responses were invited by 28 February 2008.

[6] At the time this material was collated, along with a series of FAQs, on HMRC’s site. An archive version of this page is available on the National Archives site.

[7] HC Deb 12 March 2008 c292. See also, Budget 2008, HC 388 (PDF), March 2008 p68 (Box 4.3)

[8] See also, HMRC, Budget Note BN102-107: Residence and domicile: annual £30,000 charge for some users of the remittance basis, (PDF) 12 March 2008

[9] Commons Library research briefing CBP8099, Taxation of non-domiciles: recent developments, 6 October 2017