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Budget 2008: Chancellor delivers £30K blow to non-doms
Non-domiciled residents who have lived in the UK for seven out of the last ten years will have to pay a levy of £30,000 to avoid paying tax on their foreign earnings, it has been announced.The chancellor Alistair Darling did not cave into pressure to postpone or even axe the measures, which will come into effect on April 6.
However, there were changes to the draft legislation published in January:
- The deminimimis limit for remittance basis users who have foreign income and gains which is unremitted to the UK is now to be raised to £2,000, from £1,000.
- Non-dom children are exempt from the levy. Furthermore, the tax charge will be on unremitted income and gains, rather than a stand alone charge.
"For those non-domiciled individuals or families who have chosen to make Britain their home, I believe it is right and fair that they should, after seven years, pay a reasonable charge to maintain their right to be taxed differently to other UK residents," Darling said.
An additional exemption for passengers in transit has also been added. This means those travelling through the UK will be permitted to switch between modes of transport and days spent in transit will not be counted as days of presence in the UK for residence test purposes.
The tax has been of particular concern for Americans who stand to pay double on earnings in the US and the UK. However, Ernst and Young said the Internal Revenue Service (IRS) has indicated a potential deal which could see the charge become deductible against US tax.
Louise Somerset, tax director at asset management firm RBC Wealth Management, said she was disappointed so few of the proposals were changed. "The overall message that we have picked up from our non-dom clients is one of loss of confidence in the government in view of the chaotic way in which the 'reforms' have been introduced," she added. "They see these as the thin edge of the wedge and are particularly concerned it would be easy for the rules to be changed again.
"This could not have come at a worse time against a backdrop of the global credit crunch, declining house prices and stock markets, and when we could be on the brink of a recession. Cities that have been competing with London to gain their share of non-doms must be rubbing their hands with glee at these proposals."
From 6 April 2008 as previously announced, but pending review of responses to consultation which ended on 28 February 2008:
- Non-domiciled UK residents will have to claim the remittance basis if their unremitted foreign income/gains are greater than £1,000 p.a.
- Where the remittance basis is claimed the taxpayer will not be able to claim a personal allowance, CGT annual exemption or tax relief on life assurance premiums,
- Non-domiciled individuals who have not been resident in the UK for 7 years out of the 9 previous years will have to pay an annual levy of £30,000 in order to continue to use the remittance basis of taxation for their foreign income and gains.
- The rules for what counts as a remittance are being tightened up, assets brought into the UK from abroad will count as remittances.
- Day counting rules are also tightened, so that days of departure and arrival are now counted together with the day counting rules.
- An individual will become UK resident if visits the UK average more than 91 days per annum over a four year period.
- Off-shore trusts and settlements are subject to highly complex changes
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AccountingWEB.co.uk 12-Mar-2008
Categories: Budget News, Tax News
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The Chancellor indicated that trusts and companies would not need to give any information in respect of underlying transactions - only the split of remittances into capital, income and gains.
However, if the taxman is not satisfied, in order to prove the split, the trust will need to show all transactions since formation in order to prove the current pools of capital, income and gains.
Do others agree?
is the 3rd bullet point right - isn't it those who have been resident for 7 years who are caught? See BN107 "Legislation will be introduced in Finance Bill 2008 to ensure that adult non-domiciled, or not ordinarily resident, individuals who have been in the UK more than seven of the past ten tax years, will be able to continue to access the remittance basis of taxation on payment of an annual charge of £30,000 charged on the foreign income and gains they leave outside the UK, unless their unremitted foreign income and gains are less than £2,000."
In the past, a non-dom was permitted to bring funds into the UK without the fear that such monies would be taxed (afresh) as long as he/she could present clear and well-documented proof that these were of a capital nature i.e. implicitly, that these represented capital that had already been appropriately taxed on an arising basis in his/her jurisdiction of domicile or elsewhere. What is this nonsense about such capital being treated, beyond April 6/08, as a "remittance"? Is it truly clear yet that the Treasury really proposes to subject to income (or capital gains) taxation if one were to bring in, say, 1 million pounds of capital from the sale of an overseas property, or from past savings, or from an inheritance? Has the UK gone mad?
