Non domiciled status survives the cut, but at what cost…?


This article was written prior to the Summer Budget. For more information on changes to the taxation of non-doms in the Summer Budget, visit our website

Many non domiciled individuals will have been relieved that the immediate threat to their non domiciled status was removed by the General Election result on 7 May.  But whilst that draconian threat has disappeared, many challenges remain for non domiciled and non resident individuals seeking to arrange their affairs conveniently and tax efficiently.

The prospect of a mansion tax has also receded, but the pressure on wealthy (and sometimes not so wealthy) owners of valuable residential property continues unabated.  It is clear that the Government sees residential property, and residential property transactions, as an easy source of tax.  With effect from April this year, the threshold at which residential properties held by companies (or by other “non-natural persons”) attract the Annual Tax on Enveloped Dwellings (ATED) has reduced from £2 million or more to any property valued at over £1 million.  Next April, the threshold reduces even further to £500,000.  There are a number of exemptions, most pertinently where the property is let out on a commercial basis, but this exception has to be claimed, and if it is not claimed, then the tax – and possibly interest and penalties – remains due.  Once a property is established in the ATED regime, returns have to be made, exemptions claimed and tax paid by 30 April in the relevant tax year.  In the first year that a property is subject to ATED, this date is pushed out to October, but HMRC is showing little sympathy for property owning companies who fail to pay or file on time.

Non resident companies who are subject to ATED also have to pay ATED related capital gains on any profit on sale that relates to the period during which the property has been subject to ATED.  For properties worth in excess of £2 million this means gains in relation to increases of value since 1 April 2013.  This year sees the introduction of a further layer of tax and complexity.  From April 2015, any non resident owner of residential property is liable to pay non resident Capital Gains Tax on sale.  This includes individuals, trustees and companies and is payable regardless of whether the property is exempt from ATED e.g. because it is let out on a commercial basis.  The gain that is taxable under this charging provision is gain relating to the increase in value since April 2015 but ignoring any gain that has already been subjected to ATED related Capital Gains Tax.

Alongside these additional tax charges, individuals also find themselves subject to increasingly onerous and intrusive disclosure obligations.  Any individual or trustee with investments will have already wrestled with the intricacies and frustrations of the Foreign Account Tax Compliance Act (FATCA). FATCA is the response of the US authorities to US citizens, usually resident outside the US, failing to pay US tax on their foreign investments and bank accounts.  In what many regard as a sledgehammer to crack a nut, FATCA requires financial institutions around the globe to provide information to Uncle Sam as to whether any of their account holders are US citizens or US taxpayers.  The fact that this exercise requires those institutions to gather information on thousands of other people who have no connection to the US at all appears to be of no concern.  Any financial institution declining to co-operate will suffer financial penalties in the form of punitive US withholding taxes and effective quarantining from the international financial community.

Nonetheless, FATCA offers the prospect of garnering significant uncollected tax for the US, something which has appealed to many other OECD countries.  As a result, in 2017 we expect to see the introduction of the Common Reporting Standard which will impose FATCA style reporting obligations and tax information exchange agreements between many other countries.

This relentless assault on privacy continues in other areas.  Whilst it is easy to maintain that these types of provisions assist the detection of criminal activity, which no one would deplore, the sense remains that too little concession to those legitimately seeking confidentiality has been made. The Small Business, Enterprise and Employment Act, now coming into force in the UK, will oblige UK companies from January 2016 to maintain a publicly available PSC register – a register of persons with ‘significant control’ over the company.  Significant control broadly means a 25% interest in the company.  For such persons, the use of nominee shareholders to preserve confidentiality will now be largely ineffective.   In addition, the Act already provides that from 26 May 2015 a UK company can no longer issue new bearer shares.  Existing bearer shares are to be converted to registered shares over the next eight or nine months, failing which the company must make a court application to cancel them.

The outlook for non domiciles is not all doom and gloom.  Business Investment Relief remains a generous dispensation which allows foreign income or gains to be brought into the UK without triggering a remittance where those income or gains are invested in a company operating a business.  The business can be the commercial letting of residential or commercial property.  There are still accepted routes to bring funds into the UK without triggering tax.  The new Statutory Residence Rules, whilst not by any means perfect, are clearer than the previous regime.  But overall, the regulatory regime for non domiciles and non residents is becoming increasingly restrictive and challenging, and requiring disclosure of ever increasing amounts of personal information.  Perhaps the forthcoming decision by HSBC as to whether to remain headquartered in the UK will remind the Government that, whatever its faults, the international and financial community is a significant and valuable contributor to the prosperity of the UK, and that its patience should not be tested to the limit.

Matthew Bennett, Partner, Fladgate LLP (

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