Gordon Brown first announced the review of the rules on residence and domicile in 2002. No proposals had been forthcoming - until Alistair Darling announced a major reform of the rules in the Pre-Budget Report. No draft legislation has yet been provided (it is promised towards the end of the year), but it is not too early to put review structures in place.

When will the changes take place?

The new rules will apply from 6 April 2008 – but we will not know the detail until the draft legislation is published and consultation has taken place. How will UK residents who are not UK domiciled be affected? The proposal is to change the 'remittance basis' of taxation. Under current rules, individuals who are UK resident but not UK domiciled (nondoms) have to pay UK tax on their UK income and gains, but do not have to pay UK tax on their foreign income or gains unless they 'remit' them (i.e. bring them in) to the UK. A whole raft of proposals includes the following:

  • Non-doms who have been resident in the UK for seven or more years will have to choose between two options: either pay UK tax on their worldwide income and gains, or pay an annual charge of £30,000 to be allowed to continue to benefit from the remittance basis. Residence prior to 2008 counts towards the total of seven, so some individuals will find themselves within the rules immediately on 6 April 2008.
  • Consultation on whether nondoms who have been resident in the UK for longer than ten years should ‘make a greater contribution’.
  • Changes to the complex rules about how foreign income and gains that are remitted to the UK are taxed, to address a 'range of anomalies'. This will affect both personal income and gains, and funds received from offshore trusts or companies.

What are the proposed changes on residence?

It will be critical for some individuals that (from 6 April 2008) days of arrival in, and departure from, the UK will be counted as days spent in the UK when determining whether a person is UK resident. Currently, HMRC generally ignore these days.

What about offshore trusts and companies?

The Revenue Press Release briefly notes the intention to remove 'anomalies' in the remittance basis of taxation, including through the use of trusts and companies. Once the detail is available, it will need close study.

What should non-doms and nonresidents do now?

If you are a UK resident non-dom, you should ask your adviser to undertake a review of your affairs as soon as possible to ensure that planning opportunities to improve your tax position before 6 April 2008 are not missed. Even if you have not yet been resident in the UK for seven years, you may nevertheless be affected by the other proposed changes to the remittance rules including those for offshore trusts and companies. The best approach for each individual will depend very much on their personal circumstances.

Non-residents who visit the UK regularly will want to ensure that they are kept informed of progress on changes to the residence rules and the implications for them.