6 December 2011
In the 2011 Budget the government announced two major changes to the tax treatment of individuals with significant overseas connections:
- a package of changes to the taxation of individuals who are resident but not domiciled in the UK (non-doms);
- a statutory definition of UK residence to replace the current rules based on case law, which can give rise to considerable uncertainty.
Consultation on both these proposals took place over the summer of 2011, and publication of draft legislation for the 2012 Finance Bill was published on 6 December 2011.
The residence test deferred
In the event, the non-dom draft legislation has been published (apart from one element which will be included in the 2013 Finance Bill) but not the material on the statutory residence test. The government has indicated that the residence consultation raised “a number of detailed issues which will require careful consideration” and it has therefore decided to defer the implementation of the change until the 2013 Finance Bill, to take effect in April 2013. It has, however, confirmed that it is still committed to the basic principles of the proposed change. Further details will in the 2012 Budget.
The non-dom proposals
The element of the non-dom proposals that is to be deferred to 2013 is the giving of legislative effect to the rules currently in Statement of Practice 1/09. This deals with the identification of remittances from offshore accounts held by certain individuals who are resident but not ordinarily resident in the UK, where the account holds only the income and gains from a single employment.
The other elements of the non-dom proposals are included in the draft legislation published on 6 December in the form expected, and will take effect from 6 April 2012. These are:
- an annual charge of £50,000 for non-doms who choose to claim the remittance basis for any particular tax year and who have been UK-resident in at least 12 of the previous 14 years. Currently a £30,000 charge is payable by individuals who have been UK-resident in at least seven out of the nine preceding years;
- the removal of the charge on overseas income or gains remitted to the UK where the remittance is made for the purpose of making a commercial business investment in an unlisted company which is carrying on a trade (or various other commercial activities) in the UK;
- other simplifications to the existing remittance basis rules in respect of ‘nominated’ income and gains, and the taxation of assets brought to the UK for sale. (‘Nomination’ of income is a technical matter concerned with ensuring that the £30,000 or £50,000 flat-rate charge qualifies as a tax for the purposes of the UK’s double tax agreements.)
Foreign currency bank accounts
As a separate matter, draft legislation has been published to remove from capital gains tax the gains and losses that currently crystallise on amounts withdrawn from bank accounts denominated in foreign currency. This change was proposed in the consultation on the treatment of non-doms but will apply to all individuals, trustees and personal representatives, irrespective of their domicile status.
View our full press release on the non-dom and residence announcements.