On 21 March 2012 HM Treasury confirmed that reforms to taxation of non-UK domiciled individuals will be introduced with effect from 6 April 2012. The Government had previously consulted on the proposed reforms. The reforms are a welcome development which address some of the obstacles to non-doms investing in the UK and other tax uncertainties created by the Finance Act 2008 changes.
One of the key aims of the new legislation is to make the UK an attractive place for non-doms to invest. The reforms can allow foreign income and gains to be invested in UK businesses without the previous barrier of a charge to tax and are a positive development. The relief is limited to investments made by way of loans or share subscription in qualifying companies. The relief may be extended to investments in partnerships in the future and such a move would be very welcome. Complex rules are included in the package to ensure that the funds are only used in the business or sent abroad again.
An exemption from tax on a remittance is included where an asset, for example, artwork, which has been brought to the UK for exhibition, is to be sold. The relief allows a period of grace (45 days) in which to export the monies that would otherwise be taxable as a remittance. Finance Bill 2012 also includes a relaxation from the capital gains tax charge that would otherwise arise when the asset is sold. These two measures together comprise a significant incentive to encourage non-doms to use UK auction houses.
A £50,000 remittance basis charge for non-doms who have been UK resident for 12 or more of the preceding 14 tax years is introduced. Whilst it is acknowledged that, politically, it was thought necessary to be seen to ensure that non-doms contribute their “fair share” of tax; this change is unlikely in isolation to raise significant revenue for the UK tax authorities and is perhaps more a symbolic gesture.
Other reforms aim to simplify the remittance basis. These include the removal of the tax charge on gains arising on foreign currency bank accounts for all taxpayers (not just non-doms). This simplifies an unnecessarily complex issue that can cost more in professional fees than it generates in tax revenue.
The complex nominated income rules are simplified as non-doms will be able to remit up to £10 of each year’s nominated income into the UK without it being treated as a remittance. Although this is positive, it does not go far enough to really simplify the nominated income rules.
Generally, the reforms are welcome as they should ease the tax compliance burden on non-doms and should help encourage some investment in the UK. However, there was an opportunity for bold reforms to reduce complexity and that opportunity has not been maximised.
The Government also announced that minor amendments may be made with effect from 6 April 2013 to remove some further complexities.