Bad News for the UK Non Domicile – No Let up by Darling Budget 2008
On 12 March 2008 Mr Darling confirmed the implementation of the non domicile tax reforms. A non UK domicile individual will now only have the privilege of paying tax on the income that they bring into the UK known as the “remittance basis”, if they are prepared to fork out an annual fixed tax charge of £30,000. Should they fail to trump up this sum annually they will now be forced to pay tax on their worldwide income and gains.
The £30,000 Annual Charge
The £30,000 annual charge will apply to those resident in the UK for more than seven years. Taxpayers using the remittance basis will now not be required to make any additional disclosures about their income and gains arising abroad. For more information see http://www.poweraccountax.co.uk
Effect on Foreign and UK Investments
After the introduction of this tax charge on 6 April 2008, the UK non domicile individual will now be hesitant to invest abroad as it would no longer be advantageous from a tax point of view when assessing such investments.. Such individuals may now look to keep their funds in the UK and could contribute to the revival of the UK property market, where the tax treatment would be on a level playing field between UK and worldwide investments.
Non Domiciles and Businesses Exiting the UK
London became a refuge for the super rich with approximately 115,000 people having “non-dom” status. The majority of these people came from the US, Germany, Switzerland and France.
Jeremy Penn, chief executive of the Baltic Exchange said “such changes will inevitably lead to more international shipping companies moving out of the UK and therefore less business for UK maritime service providers such as shipbrokers, lawyers, insurers and financiers”.
By such individuals leaving the UK they may well qualify as non UK residents and therefore be relieved from further taxes such as capital gains tax if they remain non-resident for five or more years, as well tax on higher rate dividend if they remain outside UK for one full tax year.
This was clearly not a well thought of reform and we will see the repercussions of these changes many years in to the future. The effect of such tax introductions will certainly not help the already very fragile and volatile UK economy that currently needs all the help it can get rather than such ill thought off tax raising strategies.
Author: Rajesh Kohli qualified as a Chartered Accountant with PricewaterhouseCoopers and he is now the Managing Principal of Power Accountax Ltd, http://www.poweraccountax.co.uk.
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