Guidance released on taxation of UK non-domiciles

GUIDANCE has been issued on proposed changes to the treatment of UK non-domiciles by the taxman.

A higher remittance charge and business investment reliefs could come in for UK non-domiciles under draft legislation published in March.

Advice on the draft legislation has been released this week. It is hoped this will clarify the practical implications of the changes. Illustrative scenarios are provided in the 54-page document.

The government has dropped the simple day-counting method to determine residence in favour of a test combining days spent in the UK with an individual’s other links to the country.

It is proposing a higher remittance charge of £50,000 for some non-domiciled people who have been resident in the UK for “a long time” but choose to be taxed on a remittance basis.

This would affect people who are not domiciled in the UK or not ordinarily resident in the UK, but are resident in a tax year and have been resident in the UK for at least 12 of the last 14 tax years before the year in which they claim.

The lower remittance charge of £30,000 remains unchanged, providing the individual concerned has spent seven of the previous nine years resident in the UK.

In addition, the introduction of a business investment relief for remittance-basis users and simplification of remittance basis rules have been put forwards.

This would mean people paying tax on a remittance basis would not be tax-liable on income generated abroad. However, should foreign income and gains later be brought into the UK, a liability would arise.

But a relief for business investments by remittance-basis taxpayers will allow any relevant person to use that foreign income to make an investment without being treated as having made a remittance to the UK.

There are also suggested simplifications to the remittance rules, which come in the form of nominated income and foreign currency bank accounts.

This would see foreign currency accounts removed from capital gains tax charges, circumventing the complex calculations involved with converting foreign currency to sterling, while people paying remittance-basis tax will have to nominate some foreign income on self-assessment returns for that year.

The nomination would mean that money would not be treated as remitted to the UK before any other foreign gains and income overseas.

Subject to parliamentary approval, the changes will take effect from the start of 2012/13 tax year.