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

In many ways it doesn’t take us much further forward as there are still many proposals and no draft legislation. The highlights are:

• Non-doms who are resident for 7 out 10 years will have to pay a £30,000 levy each year to retain the remittance basis and they will lose personal allowances and capital gains annual exemptions.
• Those who are resident for 10 out of 12 years will have an increased levy of £50,000 a year. 
• Those who are resident for 17 out of 20 years will be deemed UK domicile and lose the possibility of the remittance basis altogether.

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.

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 – 

• A flat rate of CGT at 18% is to be introduced from 6 April 2008.
• Withdrawal of taper relief that currently applies to reduce a gain based on the length of ownership and the nature of the asset. Today, for non-business assets held for more than 10 years the effective rate of tax is 24% and for business assets held for more than 2 years is 10%
• Withdrawal of the indexation relief that currently applies between March 1982 and April 1998. This relief had increased the tax base cost of an asset by amounts up to 104%

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.