Saturday, 5 April 2008

I'm a non-dom. Should I get out of here?

Bad news for many people who had overseas wealth, income, etc.... who wished to bring them to UK. Pray for many missioanries here in UK who are mainly supported from overseas income.
Original article from Daily Telegraph can be found here

Last October the taxman proposed far-reaching changes to the tax treatment of non-domiciled individuals, but the Revenue has only just published the small print. David Kilshaw explains what it all means

Tax changes could alarm non-domiciles

Who is affected?
The changes are directed at individuals who are resident but not domiciled in the United Kingdom. Domicile can be equated with an individual's home for tax purposes, as opposed to the concept of where an individual resides at any given moment. As such, it is fundamental to how tax is paid. People affected include overseas nationals working here but also those born in the UK to a father with an overseas domicile.

Anyone else?
Yes. You can be caught by the new rules if you are resident but not "ordinarily resident" in the UK. You are not ordinarily resident in the UK if you do not habitually reside here. This will apply to many people working short term - that is, less than three years - in the UK.

So if I'm domiciled in the UK, I needn't worry?
The new rules won't change your tax position. But it could affect you indirectly. There are many who are concerned that the rules will drive wealthy non-domiciled investors to leave the UK, with a negative impact on jobs and the UK economy. HM Revenue & Customs (HMRC) themselves estimate that 3,000 people will leave the UK as a result of these changes.

How will it work?
If you are UK resident and non-domiciled you will not pay tax on your overseas income and gains unless you bring them to the UK. This is the so-called remittance basis of taxation and you must claim it via your selfassessment tax return. You need do nothing if your overseas income and gains are less than £1,000 per annum.

I thought there was a £30,000 fee?
If you have been resident in the UK for seven out of 10 years, you must pay £30,000 as an additional charge if you wish to use this remittance basis. This is, in effect, extra tax and will be paid at the same time as your normal tax bill. If you choose not to use the remittance basis, HMRC will deem you subject to tax on your overseas income.

Should I claim the remittance basis?
You can make this choice for each tax year. It is likely to depend on the size of your overseas profits and whether the tax bill they would generate in the UK would be more or less than the £30,000 you would pay to claim the remittance basis. If you do claim, note that you will lose your personal tax allowances for the year and the £9,200 exemption from capital gains tax (CGT). Essentially, to justify paying the £30,000 fee, your offshore income would have to exceed £80,000.

Is it £30,000 per household?
Unhappily, no. It's £30,000 per taxpayer who wants to benefit from the remittance basis, including children if they are in receipt of overseas profits. This is the membership fee for a very exclusive club!

What else has changed?
Plenty. The new rules severely restrict the ability to bring money tax-free to the UK. The old "trick" of closing bank accounts or making gifts to your spouse or children outside the UK for them to bring monies here are gone. The rules even mean that if you buy an asset on your holiday - for example, an expensive souvenir such as an artwork - from your overseas money you may have a tax bill when you bring it home.

I have an offshore trust, is that OK?
No. The rules are changing here too. Such trusts were previously like a tax haven, offering shelter from CGT. In the future, sales of UK assets in the trust will be subject to CGT and you will need to claim the remittance basis for gains on offshore assets held by the trust. You may even have a new tax bill if you have had a benefit from an offshore trust in recent years.

What about my house?
Many non-domiciled individuals own their main home via an overseas company. From April 6, they will be liable to pay CGT when they sell their home. If you are in this position, you need to speak to your tax adviser urgently.

Is there any good news?
Yes – but only in terms of what has been left alone. There are no changes to the inheritance tax (IHT) rules, so if you have been in the UK for less than 17 years you will not pay British IHT on your overseas assets. This will not be affected by whether or not you claim the remittance basis. Also, HMRC have asked for comments on the draft legislation by February 28 so some changes might still be made.

When will this start?
The new legislation will take effect from April 6 but some of the changes have immediate effect.

What should I be doing now?
Speak to your tax adviser urgently. There may still be a chance to bring monies to the UK tax free before April 6 and you may need to restructure your offshore bank accounts, trusts and other interests before that date. David Kilshaw is a partner at chartered accountants KPMG

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