Osborne Axes Permanent ‘Non-Dom’ Tax Status in U.K.

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Chancellor of the Exchequer George Osborne said he’ll abolish the permanent “non-domicile” status enjoyed by some wealthy British residents in a bid to increase tax revenues.

The tax loophole, which allows “non-doms” to avoid paying tax on their overseas income if their permanent residence is considered to be abroad, has “fundamental unfairnesses,” Osborne said. At present, the status can be inherited.

“It is not fair that people live in this country for very long periods of their lives, benefit from our public services, and yet operate under different tax rules from everyone else,” Osborne told lawmakers in London in his summer budget Wednesday. “It is not fair that people who are born in the U.K. to parents who are domiciled here can later in life claim to be non-doms and live here.”

About 15,000 people will lose their non-dom status when the new rules take effect in April 2017, the Treasury said. The measure will raise an average of 500 million pounds ($770 million) a year over three years starting in 2018-19.

Anyone resident in the U.K. for more than 15 of the past 20 years will now pay full British taxes on all worldwide income and gains, Osborne announced.

Existing Rules

A non-dom can elect to be taxed on a remittance basis, which means that any foreign income and gains are only taxed if they are brought into the U.K. Under existing rules, residents of the U.K. for 17 of the past 20 years pay a 90,000-pound annual levy for that option. Eligibility relies on showing that either the non-dom, their father or grandfather was born overseas.

The levy is 30,000 pounds if the individual has been a resident of the U.K. for seven of the past nine years.

Osborne also said non-doms will be subject to tax when they pass on their property in Britain. “It is not fair that non-doms with residential property here in the U.K. can put it in an offshore company and avoid inheritance tax,” Osborne said. “From now on they will pay the same tax as everyone else.”

“These reforms follow a series of changes in recent years that make it increasingly difficult to argue prime residential property is under-taxed,” Grainne Gilmore, head of U.K. residential research at Knight Frank in London, said in an e-mail. “On their own, the changes to the non-dom tax rules will not have a profound impact on the prime London market as demand is driven by a number of facts, and non-doms form only a part of demand.”

(A previous version of the story was corrected to attribute the comment in the final paragraph to Grainne Gilmore.)

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