UK Resident & Non-Domicile
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UK Non Domiciled clients
This area has been subject to major changes over the last few UK bdgets. Previously non-domiciled clients obtained significant tax benefits from the use of offshore structures; however the UK Government has applied addtional criteria for non-domiciled UK residents depending on their length of stay. Traditionally "non-domiciled clients" could set up structures prior to entering the UK to hold their non UK Assets, income and Gains.
Perviously "Non–domiciled clients" in general could opt to be taxed on the remittance basis which meant that apart from their UK source taxable income and gains they would only pay UK tax only on non-UK gains and income remitted to the UK. Alternatively non domiciles can also opt to be taxed an arising basis, but this means they are taxed on their worldwide income and gains, irrespective of whether they are remitted to the UK or not. Non-domiciles were also not required to disclose their interest in offshore structures and are shielded from IHT on their Non UK assets (unless the non-domiciled client looses his/her status after 17 years of continuous residency).
The new proposals seem to remove all the UK tax allowances previously enjoyed by" Non-domiciles" on their UK earnings if they opt to be taxed on a "remittance basis" as opposed to an "arising" basis. To opt for the remittance basis the non-domiciled client must disclose his/her offshore structure and notify HMRC that they are opting to utilise the remittance basis. Once they have resided in the UK for 7 out of the previous 9 years in the UK those non-domiciles who opt to be taxed on a remittance basis will be required to pay a £30k per annum charge (this is per person in the household).The annual charge to claim the remittance basis will increase from £30,000 to £50,000 from April 2012 for Res Non Doms who have been resident in the UK for 12 or more years. The £30,000 charge will be retained for those who have been resident for at least 7 years but less than 12 years and there will still be no change for Res Non Doms who claim the remittance basis but have been resident in the UK for less than 7 years.
A further change announced is that Res Non Doms will no longer be taxed on remittances to the UK where such remittances are for the purpose of "commercial investment in UK businesses".
Clearly many non-domiciled clients are reviewing their circumstances and indeed some are considering leaving the UK. For those with UK business interests relocating to the IOM or another jurisdiction may be viable and in such circumstances we may be able to assist with re-domiciliation services. It should also be borne in mind that for wealthy clients working under a contract in the UK for less than 7 years (say a sportsperson) the remittance basis is still a very viable tax planning route.
Also it would be beneficial where non-domiciled clients own a number of foreign properties or have sigificant foreign assets for them to use an offshore trust to hold foreign property and take advantage of the remittance basis to avoid income tax and CGT before entering the UK.
If the settlor subsequently acquires a UK domicile:
- The inheritance tax position of the trust remains the same (in other words, provided the property is situated overseas, then the trust property is outside the scope of UK inheritance tax).
- For capital gains tax, any gains of the trust would become taxed on the settlor as they arise.
The worldwide income of the trust would be taxed on the settlor
With the recent changes potential non domiciled clients should be even more careful to ensure that they have taken proper legal and tax advice and have proper planning and structures in place before they enter the UK. Indeed those non domiciled clients at the seven year point would benefit from specialist tax advice – in this respect we have good access professional legal and tax advisors to assist our clients with bespoke solutions.