Chartered Accountants Ireland

CA House

47-49 Pearse Street

Dublin 2

Private and confidential

Reform of the rules for non-doms, Personal tax team, HM Treasury,

1 Horse Guards Road,

London

SW1A 2HQ

9 November 2015

Dear Sir/Madam,

Reforms to the taxation of non-domiciles

Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation document published on 30 September 2015. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee are provided on the previous page.

We would be happy to discuss any aspect of our comments herein and to take part in any further consultations/initiatives in this area that there may be in the future.

We wish to briefly comment on what we consider to be some key aspects of the current consultation.

Fairness

The consultation document outlines at part 3.2 that offshore trusts set up by non-domiciles before they acquire UK-domicile status will continue to be protected from UK tax on offshore trusts. This is sensible. It seems only fair that offshore trusts legitimately set up while the individual was non-domiciled should be excluded from these proposals.

However, the same level of fairness is not awarded to individuals born in the UK (UK domicile of origin) who now have a non-UK domicile of choice and who it is proposed will immediately be treated as having a UK domicile of origin for tax purposes once they become UK resident.

Whilst this is a tax consultation, it should be recognised that domiciles of choice happen for non-tax reasons. Thus, where an individual has relinquished their historical UK connection (accident of birth) they should be treated in the same way as anyone else if they come back to the UK and should only be treated as deemed domiciled when they have been resident in the UK for at least 15 of the past 20 tax years.

If this proposal continues to be pursued as part of this reform, we are supportive of a 3 year residence grace period for such individuals. As a minimum, a de-minimis threshold for low income levels should be considered below which this proposed rule does not apply. We would suggest that this de-minimis limit mirrors the situations in which the remittance basis is automatically available to non-UK domiciles with small amounts of foreign income.

Double taxation

Under the consultation proposals, from 6 April 2017, individuals born in the UK to parents who were domiciled here, and so at their date of birth had a domicile of origin in the UK, will no longer be able to claim non-domicile status for tax purposes when they are resident in the UK, even if under general law they have acquired a domicile in another country. Clearly this could lead to situations of double taxation where the individual retains their domicile of choice overseas.

The proposed treatment of offshore trusts outlined in para 3.2 is to tax all benefits from the offshore trust as well as taxing UK source income on an arising basis. Again this creates the distinct possibility of double taxation. We suggest that this can be resolved by providing for unilateral relief in such cases.

Potential solutions to situations of double taxation will need to be carefully addressed. The concept of a tie-breaker clause to deal with dual-domicile situations may need to be considered. This would most likely require a multi-lateral instrument to take effect.

Business reinvestment relief

From 6 April 2012, remittance basis taxpayers who bring their foreign income and/or gains to the UK and invest it in a target company may claim relief from the UK tax charge that would otherwise arise. The investment can be made in the form of money or other property derived from foreign income and gains from years in which a person was taxed on the remittance basis. This is known as business reinvestment relief.

The investor may be taxed on either the arising basis or the remittance basis in the tax year in which the investment is made and still benefit from the relief.

As the consultation proposes that deemed domicile status will arise in two potential situations resulting in the arising basis of taxation for those individuals, we recommend that business reinvestment relief be extended to those individuals in respect of their foreign income and/or gains.

Simplification

A key consequence of the proposals is that any individual who becomes deemed-domiciled in the UK will pay tax on benefits they receive from any offshore trust and any underlying entities e.g. if a settlor returns to the UK and is regarded as having retained an interest in the trust.

The government intends to base the new rules on the taxable value of benefits received by the deemed domiciled individual without reference to the income and gains arising in the offshore structure. This will mean that there will be no need for trustees to have to recreate the history of the income and gains in the trust for tax purposes once an individual becomes deemed-UK domiciled. This clarity is welcomed and should be similarly embraced in other areas of the consultation proposals.

This consultation represents an opportunity to not only reform but simplify the current rules for non-domiciles. The consultation document disappointingly lacks any mention of simplification. This is a key opportunity which should not be overlooked. It will be important to get the new rules right from the outset. Certainty, along with simplicity, stability and fairness, should be the key cornerstones of UK tax policy in this area.

Conclusion

Overall, there are many complex issues that arise as a result of the proposals in the consultation document. Not the least of these are issues such as retroactivity, transitional provisions, grandfathering, and interaction with existing tax rules.

We find it surprising therefore that such an important consultation has a consultation period of less than half the 12-week period set out in the Government’s 2012 Consultation principles: guidance document.¹ This advocates that “For a new and contentious policy, 12 weeks or more may still be appropriate”.

We are aware that a number of pre-consultation meetings were held to compensate for the reduced consultation period with the intention being to include the relevant legislation in Finance Bill 2016 with an effective date of 6 April 2017. We also note that the consultation document is lacking any sort of impact assessment.

Given the extent, complexity and potential impact of these changes, the decision to reduce the consultation period is disappointing.

Freedom of Information

We note the scope of the Freedom of Information Act with regards to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website and will be available to all of our members and the general public.

Do not hesitate to contact Brian Keegan (brian.keegan@charteredaccountants.ie) or Leontia Doran (leontia.doran@charteredaccountants.ie) of this office should you require anything further.

Yours faithfully,

Paddy Harty

Chairman

Northern Ireland Tax Committee

Chartered Accountants Ireland

Source: Chartered Accountants Ireland. www.charteredaccountants.ie.

¹ Cabinet Office: Consultation Principles, London, July 2012