Chancellor Alistair Darling offered a handful of concessions to “non-domiciled” UK residents as part of his maiden Budget address, by softening some of the proposed requirements on their taxation.
He still plans to push ahead with the plan to charge foreigners who have spent at least seven of the past 10 years in the UK a £30,000 annual levy for the privilege of not being taxed on offshore income and gains. However, he backed away from other minor changes previously proposed in response to an outcry of criticism.
The most important of the concessions unveiled this week is that children will not be required to pay the £30,000 levy to avoid paying UK tax on worldwide income and gains. Second, gains and income from overseas trusts which relate to UK assets will not be taxed unless the assets are remitted into the UK. Third, non-doms will not be required to disclose information about assets held within trusts as long as they have declared any taxable income or gains from them.
A fourth victory is that US citizens and other foreigners who already pay national taxes on worldwide income will be able to offset the £30,000 levy against any taxes paid in their home countries. And lastly, those who receive less than £2,000 in overseas income and gains will be exempt from the changes.
“The climbdown represents a useful moderation of the original draconian proposals although it will not completely allay the concerns of the business community until the detail is available,” concludes Stephen Herring, senior tax partner at BDO Stoy Hayward.
Clarification on a number of other minor points was also welcomed by accountants. Bring a car you already own for personal use into the UK from a home country and it will not be treated as a taxable asset. The same treatment will apply to art brought into the UK for the purpose of public display; jewellery; assets in the UK for less than nine months; items brought in to be repaired; and assets which cost less than £1,000.
“Previously, non-doms have only been charged on foreign investment income when that money is brought into the UK as cash – this has now been widened to include property acquired and services derived from foreign income – excluding personal effects,” explains Louise Somerset, tax director at RBC Wealth Management.
Darling also eased the limits on the number of days foreigners could spend in Britain without paying UK tax. From April, those who claim to be “non-resident” must spend no more than 90 days on average in one year over a four-year period. But this week Darling said individuals must be present in the UK at midnight for that day to count for residence purposes. Also, the Revenue will ignore days spent in the UK while in transit.
The pending changes are likely to encourage non-doms to make decisions on whether to move assets into the UK quickly.
Accountants expect a number of clients are likely to attempt to bring their yachts and jets to the UK in the coming weeks, to avoid them being treated as remitted income. “I expect marinas and jet fields will receive a host of new bookings,” said Chris Sanger, head of tax policy at Ernst & Young.
Loopholes once used by non-doms to bring income into the UK tax-free will no longer be available after April 5. Source-ceasing, whereby non-doms transferred money between offshore bank accounts and then brought it into the UK tax-free, is one window the government will close, starting next tax year. And non-doms with offshore mortgage arrangements must pay tax after April 5 if they service interest payments with offshore income.
One arrangement that can still be taken advantage of is the use of offshore investment bonds to hold assets outside the UK. As long as these do not give rise to income or gains until a “chargeable event” occurs, income from these investments can be used to bring funds into the UK tax-free, according to Lee Smythe, director of financial planning at Killik & Co.
“By making use of this type of plan, non-doms could elect to be taxed on worldwide income and gains as they arise, rather than paying the £30,000 charge,” he says.
A final point of concession likely to help nomadic types is that those foreigners who leave the UK for a set number of years and return are less likely to be required to pay the £30,000 tax to keep overseas gains and income outside the UK tax net. As the levy only applies to non-doms who have spent seven out of 10 years in the UK, it presents an opportunity to some.
“If you leave the country for a big enough gap over the rolling 10-year period, you may well be OK,” says Sanger of Ernst & Young
But accountants expressed mixed views on whether the chancellor’s proposal were adequate measures to encourage non-doms to remain in the UK in the long term.
Mike Warburton, tax partner at Grant Thornton, was pessimistic. “My view is this is a course that the government shouldn’t have entered into in the first place. It’s damaged our image as a country that welcomes overseas investment,” he concluded.
“But the changes to the original plan, which were announced this week as part of the Budget are certainly welcome.”
