Can Non Doms still remit cash tax free by making gifts to family?

In the past a common method for non UK domiciliaries to avoid the remittance rules was by gifting overseas assets to a family member who could then bring the asset into the UK.

The remittance basis effectively states that income and capital gains from overseas assets are only taxed to the extent that the overseas income or proceeds is brought into the UK.

By transferring the asset to a third party, who then brought it into the UK, this ensured that the non domiciliary had not made any remittance and therefore no UK tax charge would arise on the income or gains remitted.

In order for this to be successful, it was essential that:

• the transfer was a genuine transfer and was made 'with no strings attached'. Therefore there would need to be legal documentation evidencing the transfer (eg a deed of gift) with the giftee/recipient having full legal and beneficial ownership
• the transfer was made overseas. If there was any argument that an agreement was made in the UK for the transfer the Revenue could argue that there was a remittance by the non domiciliary

The non dom rules were completely revamped from 6 April 2008 and these rules were significantly tightened up.

It classes income or gains as remitted to the UK broadly if 2 conditions are satisfied.

1) Cash or other property is brought to the UK for the benefit of a 'relevant person' 2) The property that is brought back to the UK is (or is derived from) the income or capital gain

This is also widened to include the case where foreign income/proceeds is used outside the UK to satisfy a debt which is in respect of UK property (this therefore combats a non domiciliary obtaining an overseas loan, spending the funds in the UK, and then clearing the debt with overseas income or gains). Of key importance in the new provisions is the fact that income or gains is classed as remitted not only if it's brought back by the non dom, but also if its brought back to the UK for the benefit of a 'relevant person'.

Who is a relevant person?

The definition of 'relevant person' above includes the non dom and their:

• spouse or civil partner
• children under 18
• grandchildren under 18
• companies and trusts with the above individuals as participators (ie shareholders) or beneficiaries/trustees.

  The new provisions ensure that where income or gains are transferred overseas to connected parties before being remitted to the UK the non dom 'giftor' will be liable to tax if amounts received in the UK are derived directly or indirectly from the original income or gains.

  They widen it further still by including unmarried couples who are living together as husband & wife/civil partners as relevant persons. Unmarried couples aren't usually classed as 'connected' with each other for tax purposes, but they are for this purpose.

  Therefore there are still a number of family relationships that aren't connected and therefore wouldn't be caught by the new remittance tax rules.

  This includes:

• Uncles
• Adult children & grandchildren
• Brothers
• Sisters
• Aunts
• Nephews
• Nieces
• Cousins
• Separated couples
• Divorced couples
• Relatives of your partner you are living with (if you're not married or in a civil partnership with your partner)
• Relatives of divorced parties

• Therefore if in the example above A had got divorced from his spouse all of A's relatives would then no longer be caught unless they were a business partner or trustee.

  In addition close friends wouldn't fall within the connected party rules.

  Companies

  A non dom could also transfer overseas cash to an overseas company and then extract cash from the company. In this case a company is a relevant person if he has control of it, or if he and relevant persons together have control of it.

  Of course if you were planning on using a company for this purpose you'd need to be careful as to the method of extraction as any dividends or salary received in the UK would be subject to income tax.

  An alternative may be to use a trust. However simply transferring overseas assets to a trust you set up wouldn't avoid the remittance provisions if the gains were remitted back to the UK. If you were looking at gifting cash or other assets overseas before having them remitted to the UK the key issue would be to ensure that the transfer was not to a relevant person. The best option here would be to utilise overseas family members who don't fall within the definition.

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  Disclaimer

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  i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.

  ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.

  These Notes (and Disclaimer) do not affect your statutory rights in the United Kingdom.