Proposed changes to the tax rules for Non-Doms had meant that UK residents who took advantage of the remittance basis would lose personal allowances and annual capital gains tax exemptions where their unremitted foreign income and capital gains exceeded £1,000 a year.
Today’s Budget has relaxed this rule slightly and the limit has been increased to £2,000 a year.
There have a number of changes announced in today’s Budget to the proposed levy of £30,000 for taking advantage of the remittance basis.
The first change to note is that it will only apply to adults. Children will not have to pay the charge until the year in which they turn18. Secondly the de-minimis limit of £1,000 has been raised to £2,000.
The most significant change is that it will now a tax charge rather than a stand alone charge and, as a result, will be treated as such for the purposes of Double Taxation Agreements. This follows serious lobbying by the, particularly American, ex-pat community as it looked like US citizens would not get credit for the £30,000 against their US tax liability.
The charge will be attributed to unremitted income or gains (at the choice of the individual) and when these are eventually remitted to the UK they will not be taxed again. However there will be ordering rules that will ensure that untaxed unremitted foreign income and gains will be treated as remitted before income or gains upon which the £30,000 has been paid.
The £30,000 charge will also be available to cover Gift Aid donations.
The Chartered Institute of Taxation has highlighted the fact that a Private Members’ Bill (Disqualification from Parliament (Taxation Status) Bill) has been tabled in Parliament which proposes that those electing for the non-domiciled remittance basis of taxation will be disqualified from acting as an MP or Member of the House of Lords.
John Whiting, Chairman of the CIOT’s Management of Taxes Committee, says:
“One can understand the driving force at work here but there is also an important matter of tax principle. A taxpayer will, under the proposed non-domiciled rules, be given an option over two bases of taxation. Yet someone choosing one route is, seemingly, to be handed an extra penalty. It does seem a bad precedent if making what might be regarded as the wrong tax choice attracts adverse treatment in another area.”
This is an odd choice of words – by electing for the remittance basis it is likely that the tax bill will be reduced so this could hardly be an extra penalty!
It should be noted that this bill, like most Private Members’ Bills is unlikely to become law
Having indicated that the promised consultative document on Residence and Domicile would not be issued until the New Year it was surprising to see it appear on the Treasury website this morning.
In many ways it doesn’t take us much further forward as there are still many proposals and no draft legislation. The highlights are:
This last proposal will have a significant impact on many long term UK resident Non-doms. It should be noted that this is Government thinking at present not fixed proposals.
Watch this space for further news.
As I am sure you are aware the last Budget and the recent Pre-Budget Report introduced some significant changes to our tax system that will have a major impact on the tax affairs of UK resident non-domiciled taxpayers. Regrettably, many changes have been announced but without any detailed, or draft legislation; I had hoped to have more concrete information to give you but as the changes are significant it is useful to provide some general pointers now.
It would be sensible for those affected to book a meeting now with their tax advisers for early in the New Year to discuss what action, if any, is needed. Please bear in mind that the tax return season culminates on 31 January so it may be difficult to arrange a meeting before February. We are anticipating being very busy and this will probably be the same across the profession.
The three headline changes that may affect Non-doms are:
Residence – a difference to the way in which days of presence are calculated. With effect from 6 April 2008 it appears that days of arrival and days of departure will count as days of presence. In practical terms a Monday to Friday visit will now count as 5 days instead of the 3 under present rules. Where day counting is critical to your status this will affect your plans significantly.
Domicile – significant changes to individual taxation if one claims the remittance basis. Broadly from 6 April 2008 you will no longer be able to claim personal allowances if you claim the remittance basis. If you have been UK resident for at least 7 years you will only be able to claim the remittance basis if you accept a £30,000 levy in addition to any tax payable for a year. It appears that this levy will not be creditable against tax in other jurisdictions so will be an absolute cost to you. If you do not pay the levy you will be taxed on a worldwide basis and the double tax treaties may offer some relief from double taxation. We will need to consider the arithmetic of your personal situation in some detail to advise you on the correct course of action.
Changes to the way in which gains in offshore trusts and companies are taxed are also proposed. These are presently tax free if you are not UK domiciled and we think that they will become taxable to an extent from 6 April 2008. Where you are the settlor or beneficiary of an offshore trust or where you own an offshore company there may be an incentive to accelerate remittances into the current tax year. As I said, we are working without draft legislation at present but we need to be in a position to act quickly if necessary
Capital gains tax –
The impact of the changes can be very significant. Obviously some people will be better off under the new regime, and others will most definitely not be. If there is a possibility that a sale of any of the assets you hold is a likelihood in the relatively near future, then we do need to look to see if you are better off triggering a gain under the current regime and increasing the cost to be carried forward for calculating in the new regime, or whether you would definitely be better off doing nothing this side of April.
As mentioned above the months leading up to 5 April 2008 will be very busy for professional advisers so you should book your meeting now.
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