Various newspapers including The Independent have reported that a number of peers have resigned their seats in the House of Lords to retain their non domiciled tax status.
The Constitutional Reform and Governance Act 2010 (CRGA) was passed in early April and included two sections relating to tax: sections 41 and 42. These make anyone who is an MP or member of the House of Lords for any part of a tax year, resident, ordinarily resident and domiciled for the purposes of income tax, capital gains tax and inheritance tax purposes. This applies for 2010-11. In contrast, others such as Lord Ashcroft have given up their tax status and retained their seats.
Where there are significant advantages to non dom status, including the use of the remittance basis and the Inheritance tax free position of non UK assets, it is easy to see why the attractions of the House of Lords may have lost their allure but it may not have been such a sacrifice by the remaining noble lords.
With advance warning and some time (as here) it is relatively straightforward to obtain long term inheritance tax protection by settling one’s assets onto trust before the change of domicile occurs. Where assets are settled at a time when the settlor is not UK domiciled they retain IHT free status even if the settlor subsequently becomes domiciled in the UK. It is also possible to restructure income streams etc to minimise the effects of worldwide taxation for the future. As a result surrendering to public pressure may not have been such a noble sacrifice.
It would also be good if HMRC and the government recognised that a targeted measure such as the CRGA can work to address a specific mischief and it is not always necessary to cast the legislative net widely and catch innocent minnows at the same time.
Lisa Spearman is a partner at Mercer & Hole. If you would like to discuss the contents of this post with Lisa you can call her on 020 7353 1597.
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