Understanding the Tax Changes for Non Domiciled Individuals

I have always been intrigued by this area of taxation and I often get asked by my clients to explain the latest rules so I thought it would be beneficial to write a blog post on it!

UK tax residents are taxed on their worldwide income and gains on an arising basis, this means whether the funds come into the UK or not they will be taxed. If those individuals are non UK domicile they can choose to benefit from a form of taxation known as the remittance basis, this means they will only be taxed on their UK source income and gains plus anything remitted to the UK.

It was announced back in 2008 that if you are non domiciled but have been resident in the UK for the past 7 out of 9 previous tax years if you choose to be taxed on the remittance basis of taxation you will be subject to a £30,000 tax charge. However from 6th April 2012, this charge will be increased for those individuals who have been in the UK for 12 out of the previous 14 years to £50,000 per year.

The UK government are concerned that this tax charge is discouraging investors from bringing money into the UK and investing in UK companies and thus new rules have been drafted and will be announced in the finance bill 2012, known as 'investment relief'.

It is being proposed that if you are non domicile and you bring funds from offshore to the UK and invests these funds in a qualifying UK trading company then there will be no tax charge on the remittance. I believe this will generate a lot of investment into UK companies and there can be a lot of planning work done for anyone you know who is non domiciled.

The investment can be a subscription for new shares or a loan in an unlisted company. The company must be one which is trading or is letting commercial property. As always the lettings of residential properties will not qualify nor does furnished holiday let. If for whatever reason the company becomes an investment company then the investor has 45 days to withdraw the cash either to invest in a new qualifying company or export the funds back to the UK.

One key point to note is that there is no limit on the amount of the investment possible in any one period or lifetime. There may even be entrepreneur’s relief on the sale of the investment in the UK so this really is worth considering.

If you know anyone that is non domiciled please forward this onto them and tell them to get in touch with us at LJD as I believe with proper planning it could save thousands of pounds of tax and this is the year to take advantage of it.

Thank you for reading my blog and feel free to contact me at mitch@ljd.uk.com


Mitch the Tax Man