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Budget 2012: non-dom reform

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The Government confirmed the introduction of a number of reforms to the non-dom tax regime - including the incentive to invest in UK businesses - and announced changes to the inheritance tax spouse exemption between spouses with different domiciles.

The amount that a UK domiciled person can pass to his or her non-dom spouse or civil partner inheritance tax free is to be increased from April 2013. Gifts between spouses are usually exempt for inheritance tax purposes. However, where the donor is UK domiciled and the done is non-domiciled, that relief has long been restricted to £55,000. The Government proposes increasing that limit, and introducing provisions to allow a non-dom spouse to opt to be treated as UK domiciled for inheritance tax purposes. It is not clear whether a non-dom who elects to be treated as UK domiciled for inheritance tax purposes could subsequently take steps to ‘lose’ that elected status. If the £55,000 limit was increased in line with inflation it would now equate to around £0.5m, but the proposals appear to be to increase the limit to £325,000, which is equivalent to the current nil rate band (and then increase it in line with any changes to the nil rate band).

The Government confirmed that reforms to the non-dom tax regime announced last year will go ahead as planned with effect from 6 April 2012. These include:

  • the new incentive for investments into UK businesses. Amended draft legislation on the incentive is due out next week and it is hoped that the Government has listened to concerns raised in relation to the draft legislation published last December. In their current form, the proposals are not particularly attractive due to the number of restrictions, the uncertainty and complexity, in particular with respect to which funds need to be removed from the UK once the investment is disposed of, and the wide anti avoidance rules;
  • an increased annual levy of £50,000 for non-doms using the remittance basis if they have been resident in the UK for 12 or more of the previous 14 years. The existing £30,000 charge will remain for those who have been resident for between 7 and 12 years.

The Government has also committed itself to looking into extending the new incentive for business investment to partnerships and to further simplifications to the remittance basis rules - both from April 2013.

The Government has made a number of positive steps towards simplifying the unnecessarily complex remittance basis regime and seems to have accepted that if it wants to encourage non doms to come to, and invest in the UK, the tax system to which they will be subject needs to be certain and not subject to constant revision.


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