Consultation - June 2011

In his March 2011 Budget statement the Chancellor of the Exchequer announced consultations on reforms to the taxation of non-UK domiciled individuals (non-doms). The proposals have now been published and comments are required by 9 September. Draft legislation will be published later in the year with a view to the legislation becoming effective from 6 April 2012.

The Government has stated it does not intend to change the broad principles behind the existing tax system for non-doms.

Increase in the Remittance Basis Charge (RBC) to £50,000

As from 6 April 2012 the RBC will be increased to £50,000 for those non-dom taxpayers who have been in the UK for 12 out of the previous 14 years. This will first apply to any non-dom who came to the UK before 6 April 2001 and has remained here since then.

The existing £30,000 charge will apply to non-doms who have been in the UK for 7 out of the previous 9 tax years until such time as the £50,000 charge becomes relevant. All other aspects in relation to the RBC will remain the same.

Investing in "UK businesses"

In order to encourage investment in the UK it is proposed that no tax will be charged on any untaxed foreign income and gains that are remitted to the UK to invest in a qualifying business. The Government is inviting comments on their current proposals which are outlined below.

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Structure of Business

Investment must be in UK resident companies or those which have a permanent establishment in the UK. Investment can be by way of shares or loan stock.

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Type of Business

The company must be "trading". This definition is specifically extended to include commercial property development and letting, but only very specific types of residential property use will qualify.

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Source of funds

The investment can be by the individual or a trust or company where the investment would otherwise be taxable as a remittance by the non-dom. No minimum or maximum is proposed.

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Connection with the Business

The non-dom and his family can be employed in the business and draw commercial remuneration. There will be anti-avoidance rules to prevent remitted funds being used personally.

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Sale of business

Unless the remitted funds are exported from the UK within 2 weeks of sale the initial foreign funds invested will be treated as being remitted and taxable. However if the remitted funds are reinvested in another qualifying business, again within 2 weeks, no remittance will be triggered.

Whilst we welcome these proposals they are restrictive in that only investment in companies is permitted. Investment in unincorporated businesses and partnerships will not qualify under the proposals. In addition the requirement to remove the remitted funds or reinvest them within 2 weeks is somewhat unrealistic.

Simplifications to the non-dom rules

Some helpful simplifications are proposed.

  • All foreign currency bank accounts will be exempt from capital gains tax. This will apply to all taxpayers and is most welcome. However it is unlikely to apply to foreign currency money market funds or similar.
  • The nominated income procedure will be simplified.
  • There will not be a remittance if specified assets brought to the UK are sold, provided all the proceeds are exported within 2 weeks. However a gain on sale could then be liable to UK tax.
  • The existing concession relating to employees who are not ordinarily resident is to be legislated.

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