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The sum of our days

The proposals concerning nonUK domiciled and non-UK ordinarily resident individuals made in the pre-Budget report last October generated considerable antagonism, debate and publicity. All that response has had some impact on the Finance Bill provisions reflecting these changes.

How relevant are these to financial advisers? Well, it depends on the type of advice that you give and whether you have any clients who fall within those two categories which from here on I will refer to compositely as non-domiciliaries.

Even advisers who do not currently have any non-domiciled clients may feel it is beneficial to be aware of the proposed new law affecting such individuals, either so they can comment knowledgeably to any of their clients who ask about the provisions or where, in light of the provisions, they wish to seek out non-domiciled clients.

For any adviser doing business with other professionals, for example accountants and solicitors, having at least a working understanding of these new provisions will help to reinforce trust in the adviser as someone who knows his stuff.

Greatest attention has been given to the 30,000 charge that certain long-term resident non-domiciled individuals will have to pay to retain the favoured remittance basis in respect of offshore income and capital gains. Before looking at this charge in some detail, who it applies to and how it can be avoided, it is important to remind ourselves of some fundamentals.

First, the general law of domicile has not changed. Broadly speaking, you acquire the domicile of your father at birth and this is known as the domicile of origin. You can change this to a new domicile of choice with physical presence in another country coupled with the all-important intention to reside there permanently. There has been much case law determining whether sufficient permanent intention exists to create a new domicile of choice. There is also deemed domicile to consider but this only applies for the purposes of inheritance tax.

Residence in the UK for 17 out of the last 20 tax years will secure you deemed domicile status for inheritance tax purposes, regardless of your domicile under the general law, and you retain your UK domicile for a period of three years after leaving the UK and acquiring a new domicile of choice under general law. While we are on inheritance tax, it is important to note that all the changes introduced by the pre-Budget report, and now extensively embodied in the Finance Bill, have no direct effect on the inheritance tax rules in connection with domicile.

So, the fundamentals have not changed. Before looking at the new provisions on the tax treatment of non-domiciliaries, it is also worth considering, albeit briefly, the rules on day counting for the purposes of determining UK tax residence. This is especially so as it is a fundamental part of the test of being domiciled for inheritance tax and, in the context of this article, it is relevant for the determination of long-term residence in connection with the 30,000 charge to access the remittance basis.

Broadly speaking, you will be UK resident if you are present in the UK for 183 days in the year or are on average present in the UK for at least 91 days in the year over a four-year period.

Clearly, the fewer the number of days of presence that count for the purposes of satisfying these tests, the better. Before these new provisions were introduced, days of arrival and departure into the UK were not counted in determining whether you satisfied the 91 or 183-day tests. However, it is now proposed that such days will qualify but only if you are present in the UK at midnight on those days.

For example, an individual who arrives in the UK on a Monday morning and leaves before midnight on Thursday evening would under the old rules be deemed to have been present in the UK for the Tuesday and Wednesday only. Under the new rules, the Monday, Tuesday and Wednesday will be counted but not Thursday as the individual will have left the UK before midnight.

It is also provided that genuine days of transit will not be counted as a day in the UK for the purposes of determining residence, regardless of whether the person in transit is in the UK at midnight on one of those days. For example, if a plane arrived in the UK at 10pm and an individual had a connecting flight at 2am the next morning, neither the day of arrival nor the next day would be counted.

Next week, I will start to look at the new provisions covering remittances and the 30,000 charge.

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