How Britain's non-dom crackdown could affect UAE expatriates

Previously, expats who returned for a certain time frame would have been taxed only on any income generated in Britain or foreign income remitted there.

By Neil Walker/Tax Matters

Published: Tue 11 Aug 2015, 12:00 AM

Last updated: Tue 11 Aug 2015, 9:26 AM

In his summer budget, the first exclusively Conservative one in 19 years, British Chancellor George Osborne outlined several key changes for non-domiciled individuals, or non-doms.
These major modifications, coming into effect in April 2017, arguably represent the biggest shake-up to the non-dom status since it was first introduced around the time of the Napoleonic wars.
Specifically, what was announced? 
First, non-dom residents in Britain for 15 out of 20 years will be viewed as UK domicile for the purposes of income tax and inheritance tax, or IHT. 
Secondly, those with a British domicile of origin who have since acquired a new domicile of choice, will be treated as a British domicile from the moment that they return to the UK. Naturally, this will affect those people heading back to, say, look after an elderly parent for a period of time. Previously, expats who returned for a certain time frame would have been taxed only on any income generated in Britain or foreign income remitted there. 
Finally - and this one is the one that is most likely to affect UAE expats - mitigating IHT will becomes more complex when it comes to residential investment homes. Under previous regulations, it was possible to buy an investment property through an overseas entity and the investment was then the shares of the company, rather than the property itself, these shares were exempt from IHT for non-doms. 
However, Osborne announced in July's budget that from April 2017 the tax will be charged on any underlying UK residential real estate within these entities.  
One additional change, which is not exclusively targeted at non-doms but could impact those outside the UK, relates to principal private residences; this status already enjoy a perk, which allows main properties to be sold free of capital gains tax if the expat owners spend at least 90 days per year residing in that property. 
Under the new rules, the same property benefits from an extra £175,000 IHT relief in addition to the existing threshold of £325,000 per person. For a couple, these figures double, meaning that essentially the first £1 million of value if the principal UK home is exempt from IHT. 
All these changes will come into law in April next year and into effect in April 2017. With this in mind, expats should urgently consider reviewing their tax affairs as the clock is ticking to put all the legitimate available measures in place in order to mitigate the effect of the new, controversial rules. As I mentioned, there are a raft of ways that the impact can be mitigated, but the options will invariably become narrower the closer we come to April 2017 and, due to the complexities of each individuals' status, the time to act is now. In addition, and importantly, it remains unclear if the changes being brought in will be retrospective. With the non-dom rules being overhauled as they are, expats affected will, of course, benefit from specialist advice and assistance as the processes evolve and become, in many respects, more involved. 
This is a complicated area and the best advice is to talk to a good tax adviser sooner rather than later. A good tax adviser will conduct an analysis of the potential tax savings versus the cost of advice and running a structure such as a trust, whilst explaining the implications of any future legislative changes. Tax advisers are generally not authorised to comment on investment returns, but this is an additional factor that clients will need to consider, and there is very rarely a one-size-fits-all solution.
The writer is global head of tax at deVere Tax Consultancy, a part of deVere Group. Views expressed are his own and do not reflect the newspaper's policy.

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