House of Commons Library

Taxation of non-domiciles: the 2008 reforms

Published Friday, October 6, 2017

This note provides a short introduction to the taxation of non-domiciles, before discussing the reforms to these rules introduced in the 2008 Budget.

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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, and people 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. 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 Government launched a consultation on 6 December, 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 published draft legislation in January 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 Mr Darling confirmed that the new charge would be introduced from April, although there would “be no further changes to this regime for the rest of this Parliament or the next.”[7]  Further details were published in a series of Budget notes,[8] and provision to this effect was included in the Finance Act 2008 (ss24-5 & Schedule 7 of the Act).

This paper discusses the background to the Labour Government’s reforms to the taxation of non-domiciles, while a second paper looks at developments since then.[9]

Notes : 

[1]     eg, “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/HMRC, 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]     HM Revenue & Customs Pre-Budget Report Note PBRN18, Residence & domicile review, 9 October 2007

[5]     HM Treasury press notice 139/07, 6 December 2007.  Responses were invited by 28 February.

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

[7]     HC Deb 12 March 2008 c292.

[8]     HM Revenue & Customs Budget Notes BN102-107, 12 March 2008. These are available with the other material HMRC published to accompany the 2008 Budget here.

[9]     Taxation of non-domiciles: recent developments, Commons Briefing paper CBP8099, 6 October 2017

Commons Briefing papers SN04604

Author: Antony Seely

Topic: Taxation

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