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Taxation of non-domiciled individuals

On 17 June 2011, HM Treasury and HMRC published a consultation document with details of the government’s proposals to:

  • Increase the annual remittance basis charge for non-doms who have been resident in the UK for at least 12 years;
  • Allow non-doms to remit income and capital gains to the UK free of tax for commercial investment in UK businesses;
  • Simplify some aspects of the current remittance rules to reduce administrative burdens.

Increasing the remittance basis charge

It is proposed to increase the annual remittance basis charge to £50,000 for non-doms who have been resident in the UK for 12 or more of the 14 years before the tax year of claim. The charge will remain at £30,000 for those who do not fall into this category but have been resident in the UK for seven or more of the nine years before the tax year of claim.

Taxfree remittances for investment in UK business

The relief

The relief will apply to non-doms who claim the remittance basis. They will still pay the remittance basis charge where it applies.

The relief will be available for “qualifying businesses”. This definition will:

  • Include two types of business:
  • trading (provided that this constitutes an (unspecified) “substantial proportion” of the activities of the business); and 
  • development or letting of commercial property. 

· Exclude two types of business:
o holding and letting of residential property; and
o leasing where the activities of the business include the leasing of tangible moveable property or the provision of personal services

Other features of the proposed relief are:

· The business must be a company. It is not known yet whether the relief should apply only to unlisted companies and companies quoted on exchange-regulated markets or whether it should be extended to companies listed on a recognised stock exchange;
· Funds may be invested through offshore companies or trusts. The tax treatment of income or gains generated from the investment would remain unchanged;
· Investment may be in the form of share or loan capital;
· The relief will apply to both UK resident companies and non UK resident companies with a UK permanent establishment;
· The relief will apply to holding companies, provided that they only hold shares in businesses that are:
o qualifying businesses;
o companies; and
o resident in the UK or have a permanent establishment in the UK.
· There will be no restriction on the degree of ownership that the holding company has over its subsidiaries;
· There will be no restrictions on:
o The amount of income and gains that qualifies for the relief in a tax year;
o Connections between the investor, or his family, and the business. Antiavoidance rules will prevent noncommercial payments to investors;
o The length of time for which the investment must be held.

Anti-avoidance provisions

The government is concerned to prevent:

· Non-doms investing in low risk businesses for a limited period and then taking out the funds tax free to enjoy in the UK;
· Funds invested leaking out from companies to individuals for non-commercial purposes during the period of investment.

It proposes three anti avoidance provisions to meet these concerns:

· When the investment is disposed of, the amount of overseas income and gains remitted for the investment (original remittance) will be treated as a taxable remittance unless taken out of the UK or reinvested in other qualifying businesses within two weeks of the individual receiving the money from the disposal. The original remittance will be identified with the first amounts taken out of the business that are not permitted commercial payments until the full amount of the original remittance has been matched;
· There will be restrictions on noncommercial payments to the investor, for example, using invested funds to guarantee loans to the investor or making payments to third parties that are linked to payments to the investor;
· It will not be possible for non-doms to buy an existing business from themselves by selling it to a new company funded by income remitted from overseas, because this would not represent new investment in the UK.

Claiming the relief

Non-doms will have to claim the relief in their self-assessment returns.

Returns will include only the following basic information:

· Whether the individual has remitted income or gains to the UK for investment in a qualifying business;
· How much was remitted for this purpose;
· In which businesses it was invested.

Simplifying the remittance basis rules

The government proposes simplifying or formalising the remittance basis rules in four specific areas:

· Nominated income – Individuals will be able to remit the first £10 of income or gains that they nominate as the basis of the remittance basis charge free of tax and without becoming subject to the very complicated identification rules;
· Foreign currency bank accounts – All sums within an individual’s foreign currency bank accounts will be removed from the scope of capital gains tax. This will apply to both non-doms and individuals domiciled in the UK;
· Statement of Practice 1/09 – it is intended to put SP 1/09 on a statutory footing. SP 1/09 allows certain employees who carry out duties both in the UK and overseas under a single contract of employment to apportion their employment income rather than operate the burdensome mixed funds rules;
· Assets remitted to and sold in the UK exemptions from tax currently apply to certain assets bought from non UK income and gains and remitted to the UK. These exemptions will be extended to sale of the asset in the UK, provided that the proceeds of sale are taken out of the UK within two weeks of the money being received by the individual. This will apply, for example, to the sale of works of art in the UK;


This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.