January 10, 2014 7:01 pm

Non-doms could fall foul of remittance charges

Wealthy individuals living in the UK could fall foul of changes to rules governing the status of non-domiciled residents if they cannot account for their movements over a 14-year period, warn accountants.

UK residents who are not UK domiciled can choose to be taxed on a “remittance basis”, which means that all income and gains from a UK source are taxable along with any foreign income and gains remitted to the UK. Importantly, it also means that assets held outside the UK are not liable for tax.

Those individuals who have resided in the UK for seven out of the last nine tax years pay a charge of £30,000 for this status but there is also a new higher charge of £50,000 for anyone who has resided in the UK for 12 of the last 14 tax years. This charge applies for the first time to 2012/13 self-assessment tax returns that are now being prepared ahead of the January 31 2014 deadline.

A “remittance” to the UK for tax purposes not only includes transferring funds from an offshore bank account but also purchasing assets in the UK, such as a property, car or using money from an overseas bank account.

Wilkins Kennedy, the accountancy firm, is warning all those who continue to pay the original, lower charge that they may need to provide evidence for their movements over the entire 14-year period and will risk paying interest and a possible penalty for filing an incorrect tax return along with the extra tax if they do not.

The firms points out that non-doms have come increasingly under the spotlight as HM Revenue & Customs looks to increase its tax yield. It has been sending out letters to thousands of non-doms reminding them when tax might be due on purchases, money transfer or even gifts, coming into or out of the UK.

Peter Goodman, tax partner at Wilkins Kennedy, says that to calculate whether they are liable for the new £50,000 charge, or can continue paying the £30,000 charge, non-doms must work out whether they have been resident in the UK for 12 out of the last 14 years.

“Understanding the rules for the remittance basis of tax is already quite complex, and for some, working out where they have been resident over an entire 14-year period is going to be even more challenging,” said Mr Goodman.

“Many people simply won’t keep detailed records stretching back so far. For some, working out whether it is better to continue claiming the remittance basis, or whether it would be better to pay tax on worldwide income and gains could turn out to be a major process.”

The government has produced a 56-page guide on changes to the remittance basis of tax, which is some indication of how complex the requirements are.

“A non-dom who opts for the remittance basis needs to understand what constitutes a remittance to the UK for tax purposes. In addition to transferring funds from an offshore bank account, this would also include purchasing assets in the UK using money from an overseas bank account,” said Richard Mannion, national tax director at Smith & Williamson, the accountancy and investment management group.

“This sounds simple enough, but there are numerous grey areas regarding what non-doms should put on their tax returns. You could inadvertently be liable for a tax charge if, for example, you give foreign income to a spouse who brings it to the UK, transfer foreign income to a UK charity, or if the rental for your overseas holiday home is paid into your UK bank account.”

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