On Friday 17th June HM Treasury released a consultation document on the proposed changes to the tax regime for personals not domiciled in the UK (“nondoms”).
Aside from the previously published increase in the remittance basis charge to £50,000 per annum for those longer term UK residents (persons resident in 12 out of the previous 14 years) the news is otherwise very positive for nondoms.
Investing in UK companies
Presently, nondoms and their “relevant persons”, cannot, generally speaking, invest or bring foreign income or gains to the UK without creating a taxable remittance for the nondom.
However the Government has realised that this puts UK plc at a disadvantage so it has proposed that individuals and their relevant persons may bring foreign income or gains to the UK if they invest in a qualifying businesses without creating a tax charge.
To qualify the investment must be in a company (not a partnership or unincorporated business).
Furthermore the company must be carrying on a trade, or undertaking the development or letting of commercial property (holding or letting residential property does not qualify).
Holding companies whose subsidiaries meet these requirements may also be eligible. This will be of interest to nondoms in the private equity and venture capital industries, particularly since there is no minimum (or maximum) ownership requirement.
A remittance will only occur if the company makes a non-commercial payment to the nondom or if the investment is liquidated. However, if the investment is liquidated a charge to tax will be avoided if the nondom removes the proceeds from the UK or reinvests in another qualifying company within two weeks.
It is unclear whether a company will qualify if it is quoted on a recognised stock exchange or whether only unlisted or AIM listed companies will qualify.
Simplifying the Remittance Basis
The Treasury has heeded the call for simplification and has made announcements covering four of the most overly complex areas of the remittance basis. We have summarised the two main proposals below which will affect most of our clients.
Nominated Income
Under the current rules payers of the remittance basis charge need to avoid remitting even 1p from their nominated account in order to prevent a complete re-ordering of all of their offshore funds and future remittances. It was understood that this far reaching effect was an unintended consequence of rules designed to prevent taxed nominated income being remitted to the UK in priority to untaxed income.
Acknowledging that accidents do happen, the Treasury have suggested that these complex rules will not apply if up to £10 of the nominated income is remitted to the UK by accident.
While this is encouraging news it does little to remove the disproportionate “unintended” consequence if a nondom makes a mistake and remits more than £10 from a nominated account.
Foreign Currency Bank Accounts
Whether you are on the worldwide or remittance basis, this is potentially an issue for nondoms.
With certain exceptions any withdrawal or transfer from a non-UK, non-£ denominated account is a disposal for capital gains tax purposes.
This is problematic for several reasons because:-
i) it creates taxable gains for individuals on the worldwide basis (unless you have an unused annual CGT exemption)
ii) it can create gains in what might otherwise be clean capital accounts and,
iii) the professional costs of analysing such accounts can far outweigh the actual tax charge.
However, HM Treasury has generously proposed to take such potential gains out of the charge to capital gains tax which is to be welcomed.
Our view
On the whole these proposals are a welcome simplification to overly complex and ill thought-out rules, but more could be done. However, we are delighted to see a relaxation of the remittance rules to allow greater investment in UK businesses.
We have outlined in broad terms the proposals of the new rules. Should you have any concerns or queries about these proposals, please do not hesitate to contact us for specific advice.
| Mark Davies | James Hodgson-Barker |
| Director | Senior Manager |
| Telephone: + 44 (0) 203 0088102 | Telephone: +44 (0) 203 0088108 |
| Email: mdavies@mdaviesassociates.com | Email: jhodgson-barker@mdaviesassociates.com |
View PDF here.
This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position, you should consult a qualified professional adviser.