The British Government intends to reform legislation on the tax liability of individuals “resident non-domiciled”

Tax  Written on 13.01.2016

A proposed amendment of the British legislation on tax liability means that Danes, who for a considerable number of years have been taxed as “resident”, will now be taxed according to a principle of global in-come.

On 30 September 2015, the British Government published a consultation document on the reform of the taxation of “resident non-domiciled” persons for pre-legislative consultation.

Read the consultation document here.

The proposed reform may have considerable tax implications for Danish expatriates, who for a considerable number of years have been classified and liable for tax in the UK as “resident non-domiciled”.

To date, the “resident non-domiciled” tax status has meant that the individual tax payer only was liable for tax on income originating from the UK.

The proposed reform means that this tax status can no longer be maintained to the extent that the tax payer has been liable for tax on a “resident non-domiciled” basis for at least 15 of the past 20 years.

If the individual tax payer has been taxed as a “resident non-domiciled” for at least 15 years of the past 20 years, once the reform has been passed, that tax payer will be taxed as a “deemed UK domiciled” individual and thus be liable for tax in the UK according to a global income principle.

Introducing the global income principle means that this individual becomes liable for tax in Britain on his entire income.

The British Government has announced that the reform will come into force as of April 2017.

The announced tax reform may therefore have considerable implications from a tax point of view for individuals, whose status at the passing of the reform Bill will pass from “resident non-domiciled” to “deemed UK domiciled”.

Amongst others, the reform will have consequences for those expatriate Danes who own second homes in Denmark.

If the proposed tax Bill is passed in its current form, Britain will acquire the right to tax real property abroad owned by “deemed UK domiciled” tax payers. In the event of an ownership transfer, eg in connection with the administration of the estate of a deceased “deemed UK domiciled”, British inheritance tax will be payable on this property notwithstanding the fact that it is located abroad.

The Danish double taxation treaty with Britain does not make allowance for this reform and its consequent effect on inheritance tax.

As the Danish inheritance tax rate is substantially lower than the British inheritance tax rate, the reform will have considerable impact on inheritance matters.

The introduction of the global income principle moreover has the consequence that Danes who become liable for tax in Britain as “deemed UK domiciled” are to comply with the British provisions for the declaration and classification of financial assets, etc.

The proposed British reform may therefore be of considerable (hitherto unforeseen) importance to Danes whose tax liability status is amended at the passing of the Bill.

In light of the above, Denmark ought to consider the consequences of the proposed tax reform set out aboveand commence negotiations with Britain on an amendment to the present double taxation treaty, in order to preempt inexpediencies arising from the reform in areas such as the taxation of assets and liabilities.

In our opinion, an amendment to the double taxation treaty ought, as a minimum, to comprise a revised stance on the taxation of real property which ought to be subject to only one set of national tax regulations.

However, the proposed reform gives cause for consideration as to whether expatriate Danes, who own second homes in Denmark, ought to contemplate estate planning and future succession of such homes already today.

The Tax Team at DELACOUR is following the review and development of the proposed reform and would be pleased to provide advice on future tax liability status and the consequences of the proposed Bill.