Identifying exactly when there is a benefit to a 'relevant person' can be crucial for non doms.
The tax legislation 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
Of key importance is the fact that income or gains are classed as remitted not only if they're brought back by the non dom, but also if they're 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
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 and the 2010 change
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. The rules catch 'close companies'.
A "close company" is, very broadly, a UK resident company that is under the control of five or fewer shareholders.
The definition of "relevant person" was extended by the Finance Act 2009 to include a company (whether UK resident or not) held as to more than 50% of the shares by a close company in which another "relevant person" is a participator.
However, the change made in 2009 did not go so far as to bring a company within the definition of "relevant person" if it is held as to more than 50% of the shares by a non-UK resident company which would be a close company if it were resident in the UK.
Because of this, it has - up to April 2010- been possible to devise structures involving non-UK resident companies which, although ultimately held by "relevant persons", are not themselves "relevant persons". This has allowed income or gains to be remitted to the UK by such companies without that being treated as a remittance by the individual.
There has therefore been a change announced in the 2010 Budget that will extend the definition of "relevant person" further, with the aim of blocking this small loophole. This may mean that all such structures are now ineffective to prevent taxable remittances.
The change will have effect from 6 April 2010 and will affect existing structures from that date.
