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Non-dom £30k tax charge - nominated income/gains

Hi there

I've been contacting my non-dom clients in the run up to the end of the tax year to ensure that they have ring-fenced some offshore income to nominate for the £30k tax charge (those that are required to pay it).

So far I've not had any problems, but i'm worried that there's not much time to ring-fence an account and get some income paid on it before 5 April.

I was wondering whether anyone had found any friendly banks who were able to set up an account in a hurry to save the client getting into the punative remittance rules? Or what other advisers were doing for their non-dom clients before the deadline?

I'd be interested to hear anyone's experiences.

Tristan
TN

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13th Mar 2009 11:24

Final question.
Say a client has 5 offshore bank accounts each with say £60k in, he elects for the £30k tax charge and nominates 1 of the accounts. Is he then able to remit the £60k (as under £75k limit) back from the nominated account without incurring a further tax charge?

Thank you.

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12th Mar 2009 14:00

Thanks
I understand now, thank you Barry.

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12th Mar 2009 12:06

It depends!
In answer to Bob's queries:

a) yes - full details need to go on the return

b) Correct - if the nominated income is never remitted to the UK the punative remittance rules do not come in to play. But note my previous comment about cross-collateralisation.

c) No-one knows how HMRC are going to approach this but there mutterings that all Non-Doms will be subject to an enquiry if the remittance basis is claimed. HMRC are devoting a lot of time to preparing guidance so no-doubt they will want to apply it!

c)How much you nominate will depend on whether the Non-dom needs a tax credit in another jurisdiction (eg USA) and whether the Non-dom will ever need to bring the nominated funds to the UK.

Take a simple example say the Non dom has £75k a year of offshore bank interest which is nominated for the £30k Remiitance Basis Charge. After ten years he has a large pot (£3/4 milion) of nominated income. If, after he has remitted all his overseas income and gains from previous years, he brings this to the UK it will be free of tax.

If, however, he nominates only £1 a year in respect of the RBC, when it comes to remit the £750k he can only remit £10 tax free and £749,990 will be taxable at the prevailing rate of income tax (which might be 45%!) so the effective rate on the remittance would be almost 85%.

Non Dom taxation has now become a very specialised area.

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12th Mar 2009 11:34

Help
Can I just confirm a few points if possible.

a) You will need to declare the nominated account on the tax return and detail the income/gains in the white space.
b) If the client never remits money from the nominated account it isn’t an issue, although you still need to follow point 1.
c) If we declare an account with large sums in it are HMRC more likely to investigate the account conforms to the remittance rules.
d) Is the easiest think to do is nominate a small savings account with say £200 in it.

This is very messy

Thank you your help is apprectiated

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12th Mar 2009 11:07

On the tax return

The amount of nominated income and or capital gains are to be shown on the "Residence, remittance basis etc" pages of the tax return at boxes 31 and/or 32.

Full details of the income and gains need to be included in the "white space".

There is a potential problem with cross-collateralisation where you open a small account to contain the nominated income (say £1) but the Non-dom has a loan facility with the same bank which he uses to remit funds to the UK. It could be said that the nominated account is being "used" to facilitate the remittance and could bring the very punative remittance basis rules in to play (forever!)

Extreme caution is needed - some banks are refusing to open such accounts when the Non-dom customer already has significant funds with them.

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13th Mar 2009 12:58

Possibly!
Bob

Your question isn't clear - do you mean he has £60k of cash in each account or do you mean each account generates £60k of interest?

If he has 5 accounts with £60K in each he is unlikely to be earning more than about £15K in interest and, assuming he had nothing else offshore ,it would not make sense to pay £30k when the tax on the arising basis is only £6k or less. Whether a remittance of £60k would be taxable would depend on what it was. If it was clean capital then no , if it was an accumulation of income arising in years when the remittance basis was claimed then yes, it would be taxable

If he has 5 accounts each generating £60k of interest and one of those lots of £60k was nominated - this would produce a UK tax charge of £24K which would be topped up to £30K - that £60k could be remitted to the UK without further tax BUT ONLY if everything else (income and gains) that had arisen during years when the remittance basis was claimed had already been remitted in which case the very disadvantageous rule will come into play - forever. He could, of course remit one of the other lots of £60K but would pay tax on that in the normal way.

It will be almost impossible to get to a point where everything else has been remitted. Consider this - A Non - Dom spends some of his overseas income on a holiday abroad. That money has gone and can never be remitted to the UK. HMRC still consider this to be unremitted foreign income!

Like I said earlier - Non Dom taxation is now a specialist area.

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12th Mar 2009 13:11

No
The maximum amount you can nominate is an amount which would give rise to a UK liability of £30k

So if a Non Dom had a foreign dividend of $10,000,000 (lets say £5million) he could nominate £92,307 (Let's assume he owns more than 10% of the company and there is no foreign tax deducted - otherwise it gets even more complex). Let's also assume he is a higher rate tax payer by reference to his UK income.

You calculate the tax on the nominated income as if you had not claimed the remittance basis:

£92,307 at 32.5% = £29,999.78.

If the next year he has no overseas income / gains he does not need to claim the remittance basis and therefore does not pay £30k.

If he then remits the £5million, assuming that he has already remitted everything else from overseas, He will be taxable on remitted dividends of £4,907,693 at 40% but the nominated income of £92,307 will incur no further tax charge.

Even though he does not claim the remittance basis for 09/10 he is still taxable on that basis for income / gains that arose in a year when he did claim it.

In this scenario he would have been better off not claiming the remittance basis by over £368,000 as all the dividend would be taxable at 32.5 % instead of most of it being taxable at 40% - but the tax would be payable a year earlier.

There is much information on the HMRC website try this ( http://www.hmrc.gov.uk/nonresidents/coming-to-the-uk.htm ) as a starting point.

A point of caution not all the HMRC guidance is in accordance with the legislation

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12th Mar 2009 12:41

Now confused
Barry, this is very helpful, do you have any links to information/rules on this issue?

If say in 08/09 a non dom has a foreign divi (or foreign int) of $10,000,000 (one off). He elects for the £30k and nominates this dividend then in 09/10 as he has no other foreign income this $10m can be remitted tax free? this sounds all wrong.

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By Anonymous
12th Mar 2009 10:23

Nomination
The nomination comes as part of the claim for the remittance basis. As I understand it there is no formal way of notifying, but preumably HMRC will announce something prior to the 31 Jan 2010 filing deadline for 2008/09.

The problem is that you need to ring fence the account before 5 April 2009 or you bring into play the punative matching rules making remittance planning practically impossible.

The view seems to be that if you ever remit even £1 of nominated income then you are in the punative remittance regime forever.

So I was wondering how other people are managing this for their clients?

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12th Mar 2009 10:14

Your help.
How have you been advising HMRC of the nominated account?

Will a simple letter just detailing the account be sufficient or do you need to quote anything special?

Thanks

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12th Jan 2014 15:21

Nominated Income

Please can someone  confim thay one needs to nominate a " Source of Overseas Income" rather an overseas "Bank Account" for the Remittance Basis to be valid ? The latter could be collecting income from various sources including rental income, dividends, capital proceeds. Thank you.

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