UK increases annual charges on non-doms

At the moment, non-doms who elect to be taxed in this way pay an annual ‘remittance basis charge’ of either GBP30,000 or GBP50,000, depending on how long they have been UK tax residents.

From April 2015, non-doms who have been UK-resident for 17 of the last 20 years will have to pay GBP90,000 a year. The charge goes up from GBP50,000 to GBP60,000 for those who have been UK-resident for 12 out of the last 14 years.

However, those who have only been UK-resident for seven out of the last nine years will continue to pay GBP30,000.

Tina Riches of Smith and Williamson said the increases were not surprising, given the apparent willingness non-domiciliaries have shown to paying the annual charge.

However, the very steep increase in the charge for longer-staying non-doms will force some of them to consider opting out of the remittance basis and being taxed on their worldwide ‘arising income’ instead. A non-dom’s annual offshore income would have to exceed GBP200,000 for the remittance basis to be worthwhile.

Roy Maugham of tax consultancy UHY Hacker Young described the GBP90,000 annual charge as ‘punitive’ and warned that it could permanently drive away investors who have made a significant contribution to the UK economy. ‘That loss would outweigh the benefits of the additional GBP120 million it is expected to bring in its first year’, he said.

Moreover, according to Ray McCann of law firm Pinsent Masons, further increases are almost certainly on the way. ‘The direction of the government’s travel is clear’, he commented. ‘Very soon the economic cost of retaining non-dom status will mean that only the richest non-doms will retain the remittance basis.’

‘The UK has long been an attractive and stable jurisdiction for foreign investors, but this autumn statement has increased the costs of entry significantly’, said Matthew Woods of law firm Withers. ‘The UK remains an attractive jurisdiction for a whole number of reasons, but tax is one that is quickly reducing.’

Moreover, the UK government is also planning a consultation on its proposal to stop non-doms with variable incomes from opting in and out of the remittance basis each year to minimise their tax bills. It intends to force non-doms who choose the remittance basis to remain locked into it for a minimum of three years – an unwelcome choice for entrepreneurs with volatile incomes. ‘Whether to make that election could be a very tricky decision, as you are trying to predict overseas income three years in advance’, noted James Hender of Saffery Champness’ private wealth group.

Non-doms who elect to be taxed on their worldwide income would also have to disclose a great deal more of their personal data to HM Revenue and Customs, pointed out Gary Heynes of Baker Tilly. ‘However, some may see this as an opportunity to spend a few years out of the UK before returning to restart their residence clock.’

Sources

• HM Treasury (PDF file)
• Withersworldwide
• Smith & Williamson
• Pinsent Masons
• FT Adviser