One of the major debating points during the recent General Election campaign revolved around Non-Domiciles and their treatment in the UK, especially for tax. In my experience over many years Non-Domiciles face many issues and difficulties on arrival in the UK, not least the taxation effects on their secondments into the UK business world. As we know, the world is a small place \u2013 and getting smaller, particularly from a tax perspective.<\/p>\n
The populist, tabloid view of UK Non-Domiciles \u2013 enhanced over this latter period – suggests that they get a favouritist deal from our friendly UK tax authorities. But how true is that view in reality?<\/p>\n
Of course, firstly, if your Non-Domiciled Secondee is only in the UK on a temporary basis, performing duties partly in the UK and partly overseas, then large tax refunds can be claimed using Overseas Workdays Relief (OWR). OWR is available to all UK resident but Non-Domiciled individuals arriving in the UK who have not been resident in any of the previous three tax years in respect of:<\/p>\n
OWR, having previously been given by concession, is now statutory but is only available for the first three years, or part-years, of UK residence. However, the devil is in the detail when dealing with these claims and care must therefore be taken.<\/p>\n
Rapidly increasing globalisation and the relaxation of national borders, together with the introduction in the UK of the Statutory Residence Test (SRT) from April 2013 makes the issue of seconding employees internationally a cause for much greater concern amongst employers and professional tax advisers alike, even those not here for the long term.<\/p>\n
Secondly, let us consider the economic environment into which they arrive. According to the most recent Government figures almost 5 million UK taxpayers (19% overall) will be either higher or additional rate taxpayers in tax year 2015\/16. Nevertheless, this proportion is expected to account for almost 68% of the UK\u2019s total income tax receipts. UK Non-Domiciles traditionally constitute a significant portion of this group and a large section of these remain in the UK for the longer term, helping to generate business, employment and wealth in our Nation.<\/p>\n
With this in mind, therefore, how will these Non-Domiciles be affected by the move to and presence in the UK for tax purposes?<\/p>\n
Having only newly arrived or indeed being only in the UK for some temporary purpose will not in itself automatically relieve the individual, or his employers, of UK tax liabilities or compliance obligations. Hence, OWR might not be available.<\/p>\n
UK tax liability is broadly based on residence, which is a question of fact, now based on the UK\u2019s new SRT; this comprises several tests on an employee\u2019s length and purpose of visits, plus any connections held with UK. Again, the detail involved in determining these tests is complex and makes it far easier for someone moving to the UK, even for a short term stay, to become UK resident. Just like UK Residents, they are then therefore taxable on worldwide income & gains (the Arising basis) and can only NOT be so taxable if they are non-UK Domiciled. Even so, they must choose \u2018not to be taxable on non-UK income and gains unless remitted\u2019 (the Remittance basis) and, for longer-term visitors, pay for the privilege!!<\/p>\n
To make this choice, a Remittance Basis Charge (RBC) must be paid and this is – from April 2015 onwards – a beast that has very large teeth indeed, with a \u2018membership fee\u2019 charged annually ranging from \u00a330,000 for those non-domiciles having been UK resident for more than 7 of the previous 9 tax years, to \u00a390,000 for those with more than 17 of 20 years residence status.<\/p>\n
Furthermore, consultations are currently ongoing to consider whether application for RBC \u2018membership\u2019 should now only be on a minimum three years\u2019 basis, potentially increasing these costs yet further to a maximum of \u00a3270,000. These charges are permanent and are in addition to the tax charges on relevant UK sourced income!<\/p>\n
Additionally, RBC claimants will incur further \u2018costs\u2019, losing eligibility to both UK Personal Tax Allowances (\u00a310,600 – 2015\/16) and UK Capital Gains Tax Exempt Amount (\u00a311,100 – 2015\/16). Hence, the cost of being sent to the UK by your overseas employer is no longer something that should be taken lightly or regarded as something of a perk, certainly not without some serious pre-planning and a generous employment package!<\/p>\n
Overall, and in conclusion, it is fair to say that being a UK Non-Domiciled employee is far from being the \u2018free holiday\u2019 that it is often popularly reported and the pitfalls and minefields are there for employers and professional advisors alike, as well as the individuals themselves.<\/p>\n
This is a highly complex area and the risks involved in getting it wrong are as significant as are the costs, with HMRC taking a far greater interest in this high-risk area. Errors made are potentially very damaging and costly to all parties, invariably leading to tax enquiries, penalties and interest from HMRC.<\/p>\n","protected":false},"excerpt":{"rendered":"
One of the major debating points during the recent General Election campaign revolved around Non-Domiciles and their treatment in the UK, especially for tax. In my experience over many years Non-Domiciles face many issues and difficulties on arrival in the UK, not least the taxation effects on their secondments into the UK business world. As[…] <\/p>\n