Special article by Andrew Gerrard, director of Harding Lewis Ltd in the Isle of Man, who believes the UK Budget may result in some so-called ‘non-doms’ deciding to live in the island.
What is changing?
The headline is that permanent UK non-dom tax status will be abolished from April 2017. Anyone resident in the UK for 15 of the past 20 years will pay full British taxes on all worldwide income and gains.
Also, people will no longer be able to inherit non-dom status.
What is a non-UK domiciliary and what does it mean?
The concept of domicile is somewhat complex but a simplistic interpretation may be that an individual whose parentage is non UK and who considers their real home to be non UK may be deemed to be non-UK domiciled.
Such a person, as a UK resident, may be able to claim the ‘remittance basis’ for taxation.
On this basis, only monies remitted to the UK are taxed as opposed to being taxed on worldwide income and gains.
Typically, the non-dom will have a Trust structure outside of the UK and this may be in the Isle of Man.
What does this mean for the Isle of Man?
Firstly, there may be a decline in the number of Trust structures required by non-doms which are managed from the island.
This decline, however, is likely only to impact over a number of years rather than immediately.
Of course some non-doms may decide to change their residence pattern so as to maximise their tax benefits.
As the new rules are not yet known in detail, however; this route is not yet clear.
Secondly, the potential good news for the island is that non-doms may decide to change their residence status and live in places such as the Isle of Man to avoid the very heavy taxes they may face in the UK.
Clearly, this would mean a change in their life which is why it is so important that the island can offer a great lifestyle as well as low taxes and a can do business environment.
It may be that in the future our financial services industry work will be sourced more locally than off island, and so we need to work on increasing local sources of business.