Government consults on reforms to the taxation of non-domiciled individuals and a statutory definition of tax residence.

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The Government is publishing a consultation on its plans to reform the taxation of non-domiciled individuals (“non-domiciles”). It wants to ensure that non-domiciles make a fair tax contribution, as well as encourage them to invest in the UK and simplify the current tax rules for them.

The consultation provides details on the package of reforms that were announced at Budget 2011 and will increase the tax charge for certain long-term resident non-domiciles to £50,000, provide a significant new incentive for non-domiciles to invest in the UK and simplify the rules to reduce administrative burdens. The Government does not intend to change the broad principles behind the existing tax system for non-domiciles.

The current rules discourage non-domiciles from bringing their income or capital gains to the UK, creating barriers to potential investment in the UK economy. The Government’s aim is to remove these barriers so that non-domiciles are encouraged to invest in UK business, contributing to its priority of generating growth and rebuilding the economy. However, a balance must be struck to ensure that they make a fair contribution.

David Gauke, Exchequer Secretary to the Treasury, said:

“The Government wants to ensure that the rules of our tax system are fair. That is why we are increasing the tax charge for those non-domiciles who have been resident in the UK for long periods of time. At the same time, it is important that skilled individuals and investors are encouraged to come to the UK from abroad and we recognise the fact that non-domiciles can make a valuable contribution to the UK economy. That is why we want to make it easier for them to invest in UK business.”

The Government is also today publishing a consultation on its plans for a statutory residence test (SRT). There is currently no full legal definition of tax residence, meaning that the rules are unclear, complicated and seen as subjective. This creates uncertainty for individuals about their residence status and is a deterrent to businesses and individuals considering investing in the UK. Today’s consultation proposes a framework for the SRT and seeks views on its design and implementation, in order to address these issues.

Both consultations published today close on 9 September 2011. A summary of responses to both will be published in the autumn. Draft legislation will be published for comment later in 2011 with a view to including final legislation in Finance Bill 2012.
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