Non UK Domiciled tax payers (non-doms)

4 March 2008

Introduction

An individual resident but not domiciled in the UK is currently entitled to claim that their non-UK investment income is taxable here only on the remittance basis. The non-UK ‘earned’ income and capital gains of such individuals are automatically taxed on the remittance basis. From 6 April 2008, such individuals will need to make a specific claim each year if all non-UK income and capital gains for that year is to be taxed on the remittance basis. As a result of this many non-doms are going to pay significantly more tax.

Proposals

1. With effect from 6 April 2008 those non-doms who have been resident for more than 7 out of the last 9 years will have to pay a £30,000 flat charge for any year that they wish to use the remittance basis.

2. Money brought into the UK to pay the £30,000 will not be treated as a taxable remittance.

3. The £30,000 is payable on 31 January following the end of the relevant tax year.

4. There is a broader definition of remittances. However HMRC have stated that works of art brought into the UK for public display will be exempt.

5. If a claim to the remittance basis is made, the individual will lose entitlement to Personal Allowances and the Capital Gains Tax annual exemption.

6. A number of loopholes are being closed with effect from 6 April 2008.

7. Position re offshore trusts is still far from clear, although HMRC now insists there will be no retrospective taxation.

8. If there is no remittance basis election, then income and gains will be taxed on the “arising” basis. In addition, previously unremitted income and gains, when remitted, will also be taxed.

Tax mitigation opportunities

1. If a non-dom has accumulated income sitting in an offshore income account, there is a way of being able to remit the funds to the UK before 6 April 2008 without incurring a liability to income tax. That will not be possible after 5 April 2008, so in most cases income accounts should be cleared out before 6 April 2008.

2. Up to now capital gains made by offshore trusts could be remitted to the UK without incurring a CGT liability for the non-dom. Again that will not be possible after 5 April 2008 so those gains should in most cases be remitted now.

3. If an offshore trust has assets which have substantial unrealised gains, consideration should be given to triggering a disposal in order to bank the gain and have an uplifted base cost going forward. This is particularly important where the trust has UK assets e.g. property or UK company shares. This is because gains made by the trust on the sale of UK assets post 5 April will be taxable on the settlor even if the remittance basis is claimed and the gains are not remitted.

4. The use of trust/company structures to own a residence in the UK is considered to be inadvisable and in many cases the best course of action may well be to ”undo” the structure.

If you believe that your particular circumstances would benefit from tax mitigation advice during the period prior to 5 April 2008 please contact David Moore (tel +44 (0) 20 7874 8811).


It should be noted that the proposed changes are not yet on the statute book, and are therefore subject to change. However, it is important that any planning and review work is carried out as soon as possible so that you are prepared to act before 5 April 2008, if necessary.

Please note that Goodman Jones can only advise on the possible tax consequences of changes to your portfolio of investments or assets generally. We do not comment on the merits or otherwise of acquisitions or disposals of specific assets or investments.

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