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Tax threat is facing foreign nationals

Foreign domiciliaries living in the UK should consider immediate protective tax planning in anticipation of reforms in next year’s Budget, warns barrister James Kessler.

Kessler believes further measures to increase taxes on the 500,000 residents falling into this group will be introduced in the 2006 Budget to follow on from this year’s Budget which abolished the bearer share scheme that benefited foreign domiciliaries.

He says the next Budget could abolish the source-ceasing rule which allows foreign domiciliaries to dispose of a source of income in one tax year without being liable for income tax on income from that source remitted to the UK in a later year.

He also foresees the abolition of the rule allowing the remittance of assets not to be taxed. This rule means that if foreign-domiciled UK residents spend income abroad to purchase assets, they are entitled to bring them back to the UK tax-free.

Kessler suggests making planned purchases and bringing assets to the UK before April 6, 2006. He says people affected who are beneficiaries of trusts should arrange a thorough review of their trusts before next April and other capital gains tax planning should be considered, such as disposing of foreign property to trusts while it can still be done tax-free.

Kessler has written a book, Taxation of Foreign Domiciliaries, to address the situation.

He says: “This Government has long been threatening to collect more tax from foreign domiciliaries and it took its first steps in that direction at the last Budget.

“That could form a springboard for further reforms, the result of which could mean that the UK becomes a less attractive place of residence for foreign nationals.”

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