The issue of domicile is back in the headlines as the Chancellor’s proposals, first announced back in October, begin to take shape.

What’s the hot topic?

A number - and it is disputed how many - of individuals living in the UK year-on-year possibly have non-UK domicile status, i.e. they are “non-doms”. If exploited, this can afford them certain benefits within UK tax law, particularly in relation to overseas assets and income.

A industry has grown up of legitimate tax planning for non-doms, which reduces tax for the public purse, a consequence which would usually make this a target for the Chancellor in his Budgets. However, previously there has been reluctance to address this, apparently due to the fear that overseas companies and workers (particularly in finance jobs in the City) will be deterred from coming to Britain.

So some might say that it was inevitable that domicile would eventually be addressed, and some attempt has been made with the Pre-Budget Report in October. In short, the Chancellor has proposed both an annual flat-rate charge of £30,000 on non-doms who have been in the UK for seven or more years and want to retain the tax benefits, and also other proposals to reduce these advantages that involve the “sidestep” of UK tax.

Who are these non-doms, anyway?

Domicile is a common law concept relating less to where you currently reside, than your family history and your future intentions. Usually, your country of domicile is the same as your father’s (your mother does not get much of a look in, I’m afraid), and you only give this up if you make positive intentions to severe ties with that country. This means that if your father was born in France, for example, and having come to the UK, always intended to return there, then your father and so you, may be non-domiciled in the UK.

Of course, intentions are very hard to prove, and all sorts of factors help indicate whether you have adopted a UK domicile or not, both in terms of links made in the UK, and links retained with your country of domicile.

So, it is not only the very wealthy foreign City Bankers indicated by the Sunday papers who fall within this category, but also many other individuals who may have never lived anywhere but the UK.

What next?

Draft legislation was released in January, but has not yet been finalised. The Chancellor has already had to introduce proposals for an “entrepreneur’s relief” in response to complaints about his proposals for reforming capital gains tax. Political commentators have mused whether another Chancellor “back-down” is round the corner in relation to his non-dom proposals.

In any case, this is another hot topic expected to run and run…

As with all our information in The Business Lounge, this is not comprehensive tax advice and may not apply to your particular circumstances; to discuss how these changes may affect you, contact your accountant.