Getting used to the non-dom tax rules

 It is now established that longer-term UK residents who do not wish to pay UK tax on all of their worldwide income will have to pay an annual charge of £30,000 for that privilege unless their overseas income and gains are less than £2,000 or they have minimal UK income and no remittances. This raises the question whether the £30,000 remittance basis charge is actually worth paying. The charge is described as creating a tax credit but in reality is a fee, as the credit is only available against UK tax if all of the individual’s overseas income and gains, for all years in which the remittance basis applied, are brought into the UK. If that is the case, all of the income and gains will be taxed anyway, in which case the only benefit of paying the remittance basis charge is deferment of tax.

But there are still opportunities for planning, especially for couples. For example, if both partners are non-UK domiciled and would benefit from the remittance basis, they might be able to put all of the income and gains that they do not intend to remit to the UK into the ownership of one of them alone. That way they only need to pay one remittance basis charge between them. But Baker Tilly partner Gary Heynes warns, “This is not a mere paper exercise, there are legal formalities to meet and those couples need to be aware of anti-avoidance rules that catch individuals and couples who make remittances indirectly.”

All non-doms claiming the remittance basis, whether they are paying the £30,000 charge or not, are finding the new system more complex. For instance, those who pay on a remittance basis lose their personal allowances and capital gains tax exemptions – so a difficult set of calculations is needed when deciding whether to claim remittance basis. Additionally, it is not only about the numbers; non-domiciled clients have in the past not needed to worry about what overseas income or gains they have, or how some more complex investment returns may be taxed in the UK. If they decide to be taxed on the arising basis, they will need to ensure that all sources of income have been picked up and that they are clear on the tax treatments – all of this is not always straightforward.
 

Widening the remittance net

Having paid £30,000 for the advantage of remittance basis, those taxpayers also now face tougher rules on what they can bring into the UK tax-free. “In the past, tax was generally only payable when money was remitted from overseas but the definition of what constitutes a remittance is now wider than ever before,” says Gary Heynes.

In practice, this means that property or assets brought into the UK may be subject to tax if it has been bought with foreign income or gains. There are some exceptions. Personal effects, assets worth less than £1,000 and certain items brought here for repair or restoration, will escape tax. Additionally, gifts of money or assets made overseas, which are brought to the UK by recipient spouses or close relatives, could create a tax charge for the donor. Tracking this will be one of the major issues for non-doms.

Non-domiciles should also review any assets held in offshore trusts. Under the new regime, the disposal of assets from these trusts will trigger a charge if the proceeds are remitted to the UK.

For all non-UK domiciles, year-end tax planning now encompasses:

• reviewing what remittances have been made in the current year
• considering what might be remitted before the end of the year
• reviewing offshore investments to ensure that they are ready for next year
• for couples, ensuring that the division of assets is tax efficient, especially where this may save the couple £30,000 by only needing to pay one remittance basis charge.