Consultation begins for reform of non-dom taxes
The Treasury has last week begun a consultation on the reform of the taxation of non-domiciled individuals in the UK which runs untill September 2011, with draft legislation and further consultation to be issued in 2012, and the changes taking effect from 6 April 2012.
The consultation follows concerns, raised by the tax profession amongst others, about the impact on the UK economy on the disincentives of the current tax rules to those wealthy non-domiciled individuals living in the UK wishing to bring funds here, and the increasing and excessive complexity of the computations and compliance for those paying UK tax.
Ian Miles, partner at accountants James Cowper comments: “One of the major announcements in the last Budget in March along with this consultation was a new tax relief which is proposed for those individuals bringing funds into the UK for investment in the UK.
“The relief would apply equally to remittances by the individual, their trust or company; however the investment can only be in a company. This will include holding companies, and within this private equity and venture capital companies could qualify. It may be extended to include full and AIM listed companies. The investment can be in shares (ordinary or preference), loan, or loan capital. The company must be a trading company and includes businesses undertaking development or letting of commercial property, financial services, manufacturing, retail, technology, and importing goods. Holding and letting residential property, leasing of moveable property (such as yachts and cars), and provision of personal services, are specifically excluded.”
Ian adds: “Income and gains generated by the investment would be taxed in the same way as any other UK investment. Broadly these will be taxable on the individual, but there are opportunities for planning.
“There is also a proposal to raise the remittance basis charge for those in the UK for 12 or more of the last 14 years to £50,000. It will apply in the same way as the £30,000 charge for those in the UK for seven or more of the last nine years, with the flexibility of opting in and out of the remittance basis each year.”
Ian adds: “A further proposal is an extension to the exemptions for assets imported to the UK without triggering a remittance to cover ‘exempt’ assets brought to the UK for sale. ‘Exempt’ asset is not defined but the consultation suggests that this will not be restricted. The proceeds must be withdrawn from the UK within two weeks of sale, or the income and gains originally used to purchase the asset will crystallise as a taxable remittance.
“Further tax relief is proposed to mitigate the penal remittance identification rules where nominated income is brought to the UK. The relief applies where £10 or less of nominated income is remitted in a year. Nominated income is usually a minimal amount, and any remittance inadvertent. The implications can be disproportionate and this would be a sensible relaxation in the rules.”
“A further tax relief which will become law is the Statement of practice 1/09. This is a relief from the remittance rules for not-ordinarily resident employees making use of the overseas work days relief provisions, where the salary is paid into one account offshore, is to be put on the statute book. However, under the residency consultation, also released last week, it is proposed to restrict this relief to non-domiciled individuals only, under the revisions to not-ordinarily residence status.”
Ian concludes: “Finally, and by no means least, tucked away in some short paragraphs is the proposal to exempt all foreign currency bank accounts held by individuals from capital gains tax. This will apply to both non-domiciliaries and UK domiciliaries. It is not clear whether this will apply to foreign currency bank accounts held in offshore structures and we will await developments with interest.
“This is certainly a consultation that is of importance to accountants, the wealth advising community, and their clients, who will watch its progress closely.”
Ian Miles, Partner, James Cowper LLP +44(0)1491 848500 or email imiles@jamescowper.co.uk
23.06.11