Mr Osborne's announcement today regarding a consultation on our personal residence rules, with an aim to introduce a statutory residence test from April 2012 is a great relief, albeit overdue. This subject has been pushed around from pillar to post in the last few years and a fair amount of progress had been made on it when the Coalition took over, but I have to admit to thinking that it might now be very much in the long grass and the 'too difficult' pile.
We have never had a statutory residence test for individuals, residence positions instead being determined through the interpretation of case law and guidance from HM Revenue and Customs.
With a slew of high profile residence cases in recent years (Gaines Cooper and Lyle Dicker Grace to mention just two), vague re-issued HMRC guidance and with HMRC on a winning streak in terms of keeping people in the UK tax net, the position has never felt more uncertain. This has made my job as an adviser extremely difficult in terms of being able to give clients clear advice - it is hard to do so when there are no clear rules!
It will be interesting to see where our statutory test ends up:
it is no secret that HMRC are not keen on a 'bright line'
test (such as a day count test like the USA and many European
countries have), namely because people then run up to the line and
stop. But it is also clear that an unclear set of rules and
guidance makes for an expensive business in tax collection as
inevitably, if the tax at stake is enough, litigation is the only
route to resolution. A test which puts different weightings on
different connections to the UK (eg days of presence, availability
of a house) would seem to be the most likely.
A consultation on the taxation of non-domiciles will also be issued
in June. This really was expected as both Coalition parties'
election manifestos mentioned reviewing the position and the
Emergency Budget in June 2010 also confirmed a review would be
made. There has been much conjecture and rumour spreading over the
last few weeks as to what might come out today with everything from
abolition of the non-domicile rules altogether to removal after a
certain number of years. As is consistent with the conversations we
have had with HMRC and The Treasury over the last year or so
though, the strategy seems to be very much on encouraging
investment into the UK.
This absolutely has to be a good thing and I am very encouraged by
the prongs of the review laid out. Remittances for the purpose of
commercial investment in UK businesses will receive 100% relief
from tax which will no doubt encourage non-domiciled entrepreneurs
to bring their funds to the UK for wealth creation activities.
Simplification of some of the more burdensome current rules will
also be welcome - as a practitioner in this area I can only plead
that an allowance for foreign exchange gains is introduced
(please)!
An increase in the remittance basis charge for longer term
residents will probably encourage another section of people to
declare tax on a worldwide basis, but overall does not diminish the
spirit of having a tax regime to attract wealthy individuals to
this country.
We are in a fiscally competitive environment on a global basis, not
just with our corporation tax regime which is often widely cited,
but also our regime for individuals. Switzerland is a well trodden
route, but EU countries such as Malta and Spain have also
introduced measures to attract the wealthy over recent years: we
are not the only option anymore!
With both matters we will be making sure Deloitte is at the table
and influencing the debate.
George himself said today that he wanted a certain and predictable
tax system: to my mind the subjects above are good places to start
and I am in an optimistic mood!
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