As part of a plan to make £5 billion of tax savings in today's Summer Budget, Chancellor George Osborne is to put an end to non-domiciled residents enjoying permanent tax advantages. The move is expected to raise an extra £1.5 billion in taxes over the next five years.
At present, non-doms - those who live in the UK but consider their permanent home to be in another country - pay UK tax on income earned offshore on a remittance basis (ie only when they bring it into the UK).
The favoured status of wealthy non-doms has been something of a political hot potato, as they currently not only pay more than £6 billion in UK income tax but also spend considerable sums on goods and services in the UK. Both would be diminished if they were to be driven out of the country by tax changes.
However, from April 2017, those who have been resident in the UK for at least 15 of the past 20 years will be treated as UK-domiciled for tax purposes.
The Chancellor pointed out that although many non-doms 'make a considerable contribution to our public life and to tax revenues', there are a number of 'fundamental unfairnesses' in the system.
He highlighted in particular the fact that those born in the UK to non-dom parents can also claim non-dom tax status, that non-doms can hold their home through an offshore company to sidestep inheritance tax, and that there is currently no end-point to non-dom status.
The changes will put an end to permanent non-dom status. 'Anyone resident in the UK for more than 15 of the past 20 years will now pay full British taxes on all worldwide income and gains,' said Osborne.
The move is a blow for wealthier foreign residents, says Sarah Lord, managing director of Killik Chartered Financial Planners.
'This demographic has seen a real shift in attitudes towards them from this true-Blue government, which might surprise many, but the message for them is clear - the days of tax evasion and aggressive tax planning are now over, and they need to carefully plan their finances and next steps after today,' she says.
However, according to HMRC there are more than 113,000 people registered as non-dom, of whom only 15,000 have been in the UK for more than 15 years.
Rachel Griffin, financial planning expert at Old Mutual Wealth, says: 'This will impact non-domiciles already living in the UK, and those approaching or exceeding the 15 years will have until 6 April 2017 to make alternative plans or be deemed domicile for UK IHT purposes and lose the option to choose the remittance basis of taxation.
'There will be some non-doms who have been in the UK for 13 years, and thought they had a further four years before they needed to leave the county or start paying tax on their worldwide assets. These people now have less than two years to make that decision.'
But Richard Morley, tax partner at accountant BDO, thinks the changes will have relatively little effect on people's choices. 'These new rules may result in a small number of current non-doms considering whether or not to leave the UK, but on the whole, this is unlikely to make a significant impact on the current levels of resident non-doms, nor on levels of those seeking to come to the UK.'
Griffin adds that at present there are no changes to the amount non-doms will pay under the remittance charge basis.