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Unremitting choice for non-doms

The new non-domicile tax regime is almost a year old now and it is approaching decision time for many UK- resident but non-domiciled individuals as to whether they should elect to pay the remittance charge of £30,000 or to pay tax like other UK taxpayers.

This article looks at the impact of the new tax regime, the new reporting issues and the implications of any unforeseen consequences of its introduction.

Are there any non-doms left?

There was quite an uproar in some quarters of the non-dom community when the new regime was announced, especially in the City with many high-flying non-doms employed in the finance sector. There was talk of a mass exodus and a huge decline in the finance industry.

There has been a decline, although not for this reason, and whether there has been an exodus is debatable. Some people will have left the UK, partly for tax reasons but mainly because they were planning on leaving anyway.

However, it is likely that many non-doms have accepted the new rules and are possibly looking at ways of minimising the impact on their affairs by considering more UK-focused tax planning methods.

A recap of the new rules

The new rules introduced a £30,000 charge for those individuals who have been resident for more than seven of the last nine tax years in order to be able to use the remittance basis of taxation. The rules also changed the definition of remittances, the definition of residency for UK tax purposes and the tax benefits associated with offshore trusts and companies.

To pay or not to pay?

Some people may be unsure as to whether they are subject to the remittance charge and whether they should pay it (at least for this tax year).

Broadly speaking, if you are UK-resident, over 18 years of age and non-domiciled, have been resident in the UK for more than seven of the last nine years and have more than £2,000 of unremitted foreign income and/or capital gains, you will fall within the scope of the remittance charge.

Having established whether you would be subject to the remittance charge, the question as to whether you should pay it is entirely up to the individual concerned.

Some may pay the charge in order to maintain confidentiality over their financial affairs, others because it makes economic sense to do so.

Each individual will have their own basis for choosing whether or not to pay.

Are the new reporting requirements easy to understand?

HM Revenue & Customs has carried out extensive consultations with industry and representative bodies to rectify what have been acknowledged as “teething issues” with the new rules and they are still far from perfect, although they are clearer than before.

However, it is still too early to say whether there will be any problems with the reporting of tax liabilities since this only needs to be done by January 2010.

It is likely that HMRC will issue guidance notes and set up a hotline for queries closer to the time. Suffice to say that the rules are complicated and will leave many scratching their heads.

Have the new rules had any impact?

The introduction of the new rules has not brought about a financial meltdown, as predicted by some critics – this has happened for other reasons.

However, there has been an impact internationally in so far as there has been a weakening of the perception of the UK as being fiscally stable and reliable.

International businesses and individuals are now more wary of setting up base in the UK. Given the economic climate, it might be said this is the least of the Government’s worries but when there is a recovery, it could become more of an issue.

Can anything still be done?

It might now be difficult to achieve anything for this tax year but measures could be taken for future years. Planning opportunities have emerged and should be considered. Purely from a tax planning perspective, the recent stockmarket and property market falls have been a blessing in disguise as they have offered the possibility of restructuring assets held by non-doms personally or through trusts and company structures.

However, the merits of any restructuring exercise would need to be balanced against cost-effectiveness and suitable investment advice.

There has been a sufficient bedding-in period for the new rules but it is still too early to tell how effective they are and whether they will deliver what they set out to achieve.

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