Changes in the 2008 Finance Bill for Non Doms

The 2008 Finance Bill was published on 27 March 2008. It's a huge document and over the course of the next few weeks we'll be looking at some of the key provisions in detail. It has fleshed out the earlier guidance from the Revenue and makes interesting reading. In this article we provide a summary update of some of the key proposals.

• The alienation provisions

  These clarify that transfers of overseas assets to someone who subsequently brings the asset into the UK won't be classed as a remittance provided the non dom or a 'relevant person' doesn't benefit. A relevant person includes spouses and civil partners, unmarried partners and children and grandchildren aged under 18.

  It also covers close companies, or foreign companies that would be close if in the UK, of which any of them are participators (essentially shareholders) and trusts of which any of them are settlors or beneficiaries

  There are new provisions that apply to 'gift recipients' where qualifying property of a gift recipient is brought to the UK, but this would only be a remittance if enjoyed by a relevant person.

  Similarly there is a connected operation test where the property of a person other than a relevant person is brought to the UK but this would also be a remittance if enjoyed by a relevant person.

  Therefore it would appear as though an overseas gift of overseas income/capital gains to adult children would not be within the new provisions.

• Disclosure

  Individuals entitled to claim the remittance basis who have no UK income or gains, and who don't remit any foreign income or gains, won't have to claim the remittance basis in years they are not liable to the £30,000 remittance tax charge. This avoids them having to complete a self assessment return only so they can claim the remittance basis and then have no tax to pay

• Nominating overseas income or gains for the £30,000 tax charge.

  As explained in the 2008 Budget notes the £30,000 tax charge is treated as a tax on unremitted overseas income or capital gains. Therefore you'll need to elect which overseas income or gain is to be classed as having suffered the £30,000 tax charge. Then when you later remit that income or gain it won't be taxed.

  There are some very detailed provisions covering the operation of the ordering rules to determine which income or gains are classed as remitted.

  However one point that it does clear up is what would happen if the overseas income or gain was not sufficient to give rise to a £30,000 tax charge.

  Of course in most cases if this was the case the remittance basis would not be claimed however if it did occur the legislation states that where the tax due on the amount of nominated income or gains is less than £30,000, the individuals income tax liability for the year is increased so that the individual is liable to a charge of £30,000 as a result of their claim for the remittance basis for that year.

  The amount nominated to which the £30,000 tax charge is to apply is an amount such that after taking into account any allowable credits or deductions (such as credit for foreign tax) will give rise to a tax charge of £30,000 on the arising basis of taxation.

  If the individual does not nominate sufficient income or gains to give rise to a tax charge of £30,000 but nevertheless claims the remittance basis, then the £30,000 is made up by adding sufficient income tax to the charge until it equals £30,000.

• Record keeping for the £30,000 tax charge

  More detailed record keeping to keep a track of income that has been taxed (via the £30,000 tax charge) and other unremitted income will need to be kept.

  However the legislation states that the record keeping can be avoided if individuals ensure that "nominated" income or gains upon which the £30,000 tax is paid are not remitted to the UK, or only remitted after the remittance of all other unremitted income and gains since the first year of residence from April 2008.

  The explanatory notes state that '…If an individual is confident they will never need to remit that "nominated" income or gains, paying the RBC will not involve any extra complexity or record keeping…'

• Mixed funds

  Remittances from mixed funds will be classed as a remittance of overseas income or gains based on a particular order.

  The sequence in which amounts in the mixed fund are to be applied against the remittance is:

  - employment income

  - relevant foreign earnings (other than employment income subject to a foreign tax);

  - foreign specific employment income (other than employment income subject to foreign tax) relevant foreign income (other than relevant foreign income subject to a foreign tax);

  - foreign chargeable gains (other than foreign chargeable gains subject to a foreign tax);

  - employment income subject to a foreign tax;

  - relevant foreign income subject to a foreign tax;

  - foreign chargeable gains subject to a foreign tax; and

  - any income or capital (including income or capital already taxed in the UK) not included in the previous eight categories.

• Anti avoidance rules for attributing gains of offshore companies

  This applies in broadly the same format as the draft provisions, with non doms being included within the anti avoidance rules attributing gains of offshore companies to UK residents (subject to the remittance basis where applicable).

  However the revised legislation allows relief for tax paid under the anti avoidance provisions where the shareholder is later charged to CGT on the disposal of shares in the company. This is to remove a potential double charge to tax.

• Trust disclosure

  It states that non-UK domiciled settlors of non-UK resident trusts will not be required to inform the Revenue of the settlor's name and address. This will also apply to the names and addresses of the trustees on the creation of a non-UK resident trust or of the existence of an offshore trust where the settlor becomes resident in the UK.

• Anti avoidance rules for offshore trusts

  The provisions attributing capital gains to settlors of offshore trusts won't apply to non UK doms subject to the remittance basis. However, there are a number of complex rules relating to S87. This attributes gains of the offshore trust to UK residents where they receive capital payments from the trust. Non Doms are now within the scope of these rules again subject to the remittance basis.

  There are a number of new matching rules which apply the concept of matching capital payments to trust gains within a tax year to determine the amount of chargeable gains to be attributed to a beneficiary.

  This contrasts with the existing provisions where unmatched trust gains or capital payments are pooled irrespective of the year in which they arose.

  About the Author

  The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).

  He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

  Google+

  =============================================================

  Disclaimer

  =============================================================

  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.