Impact of the new remittance provisions for non doms

The £30,000 annual tax charge is unlikely to be a significant issue for the many foreign multi millionaires who live in the UK and have significant overseas income. Instead it will be the 'middle class' foreigners living in the UK with overseas investments who will be most hit by the new measures. Remember that this applies only to non UK domiciliaries who have been resident in the UK for more than seven years. As such anyone coming to the UK would have a seven year window in which they could still make full use of the remittance basis of tax without having to consider the £30,000 annual tax charge. This will make establishing the date of commencement of UK residence very important. It may also be necessary to break UK residence for a year or two if significant overseas income is expected. Remember that the tax benefit of non UK domicile status only applies to overseas income and assets. The whole purpose of the non domicile rules is to take account of the fact that non domiciliaries s by definition will not be in the UK permanently. (As we've seen non UK domiciliaries are usually people with non domiciled parents and who haven't made the UK their permanent or indefinite home). Therefore on this basis the UK would still be very attractive for foreign nationals looking to come to the UK for up to seven years. After that any non doms with few UK ties and with a degree of mobility may simply leave the UK. By becoming non UK resident they would be exempt from UK tax on overseas income or assets (as opposed to the remittance basis if they remained UK resident). Of course non resident non UK domiciliaries could not be subject to the £30,000 tax charge. Anyone with substantial overseas income or capital gains may just elect for the remittance basis, and suffer the £30,000 tax charge whilst retaining proceeds overseas. As many non UK domiciled individuals own overseas property or shares if significant gains will arise on disposal the £30,000 tax charge can still represent a low effective rate of tax. Example Pedro, a non UK domiciliary who has been UK resident for the last 10 years owns overseas property investments that are standing at a gain of £500,000. If he sold the property he's be looking at a UK capital gains tax charge of around £90,000 assuming no other tax reliefs or exemptions. If, however, he does not require the proceeds in the UK, he could simply elect for the remittance basis, pay the £30,000 tax charge and reinvest the proceeds overseas (perhaps into more overseas property). This would save him £60,000 in tax and equate to a UK effective tax rate of 6%. The changes to the application of the remittance rules will make it not only extremely important to consider when if the remittance basis will be claimed, but it will also make non UK residence status even more important. By remaining non UK resident it is possible to avoid tax completely on overseas income. Having said that, anyone with significant overseas income would be likely to just pay the £30,000 tax charge and claim the remittance basis. The overseas income/proceeds could then be retained overseas to benefit from the remittance basis. See our members articles on this in the pre budget report section including: Changes to the remittance rules after the PBR

Capital gains and non UK Domiciliaries after the PBR