Yesterday' Budget announced a number of changes that apply to non doms. Many of the changes are minor but could nevertheless be important in your UK tax planning arrangements. This article looks at the changes announced to the remittance basis in the 2009 Budget and how they will effect non doms.
Under the current rules if you have any overseas employment income you'll have to file a tax return. The new changes will means that where you have:
overseas bank interest of less than £100You then won't have to file a UK tax return provided the overseas income is subject to a foreign tax.
Exempt Assets
The exempt assets rules allow anyone who is subject to the remittance basis (either by claiming it or by virtue of having unremitted overseas income/gains of less than £2K) to bring some assets into the UK without this being classed as a remittance.
This includes personal items (eg Watches, Jewellery etc) and also certain items that cost less than £1,000.
Prior to the 2009 Budget you needed to have purchased these items out of overseas investment income for the remittance to be free tax. The 2009 Budget changed this so that even if the assets/items purchased were out of overseas capital gains or overseas employment income they could still qualify for the remittance exemption.
The Budget is also backdating this to April 2009.
Unremitted income or gains of less than £2,000
The remittance basis applies automatically where you have unremitted overseas income or gains of less than £2,000.
The legislation will be amended to make this extra clear so that a claim will not be required in these circumstances. Essentially a non dom will be treated as having used the remittance basis unless they notify HMRC that they wish to be taxed under the arising basis. Again this will be backdated and will apply from 6 April 2008.
UK income of less than £100
They're also to extend the provisions to ensure that the remittance basis applies automatically where a non dom has total UK income or gains of no more
than £100 which has been taxed in the UK, provided they make no
remittances to the UK in that tax year.
Gift Aid donations
The Budget provisions confirm that if the £30,000 remittance tax charge is payable this is treated as a payment of income tax or capital gains for UK tax purposes. As such this would ensure that charities could claim tax relief even if the only tax you (as the donor) pay is the £30,000 remittance tax charge.
Non dom employees
The Budget confirms that legislation will be put in place to confirm the position as stated in recent statement of practice 1/09. This was covered in our article:
When the mixed fund rule doesn't apply to non doms with overseas employment income
Other implications
As well as the above provisions that specifically affect non doms there are other 'general' changes that may effect non doms. The most important could be:
New 50% Rate of Income Tax
In the 2009 Budget Report a new 50% rate of income tax was announced on anyone earning over £150,000 per tax year. It won't apply though until 6 April 2010.
It will apply to all types of earnings so will include:
Traders with substantial trading profitsNote that dividends are excluded from this list. They'll still be caught but will be taxed at a new 42.5% rate of income tax. This equates to an effective income tax rate of 36.1%.
This makes the distinction between trader and investment status even more crucial. Traders could be taxed at 50% if they make substantial profits whereas investors would be taxed at 18%.
Reduced personal allowances for anyone earning over £100K
They've changed the previous proposal originally announced in the pre budget report and as from April 2010 anyone earning over £100K will see their personal allowance reduced -- potentially to nil
Tax on overseas dividends
It extends the 1/9 tax credit to UK residents obtaining overseas dividends even though they may own more than 10% of the shares in the company.
New provisions also extend the 1/9 tax credit to dividends from offshore funds
Changes to the ISA limits
The ISA limits are to be increased to £10,200, of which up to £5,100 of can be saved in cash. The new limits will apply to people aged 50 and over from 6 April 2009 and for all other ISA investors from 6 April 2010.
