Foreign residents to face higher taxes

Prospective UK nationals could face tougher tax rules if the government tackles complicated laws concerning residency and domicile in the Spring Budget, tax experts warned this week.

Newly-acquired British citizenship is unlikely to affect the tax position of J Paul Getty II, who was awarded it last month by the Home Office. But Harrods’ owner Mohammed Al Fayed, who is seeking a UK passport, could be hit by any change.

Under current residency rules, foreign nationals and British adoptees must pay tax on UK earnings if they are resident for most of the tax year, but only face a bill for earnings outside the UK if they are domiciled here. Foreign earnings are taxed on a remittance basis, which can create substantial savings.

John Whiting, Price Waterhouse’s head of direct tax, said: ‘It is incredibly difficult to get domiciled here – to do so you must sever all links with your country of origin. Remittance is exactly the kind of area that Labour will be looking to tighten up.’