UK Chancellor rejects calls for delay on non-domicile tax changes
25-Feb-2008On 14 February, UK Chancellor Alistair Darling rejected requests to delay the implementation of proposed changes to the rules for non-dom taxation until 2009.
"We have got a consultation, which is running until the end of February, and obviously I must listen to what people have got to say. But frankly once you've decided on a policy, to start looking at delaying it doesn't help anyone at all," Mr Darling told the BBC in a radio interview.
The Chancellor said the policy of levying a £30,000 annual charge on non-doms who had been in the UK for more than seven years was fair, and said the "clarification" of draft legislation over how accrued gains in offshore trusts would be taxed was a reasonable response to concerns in the City.
HM Revenue & Customs, the UK's tax authority, clarified in a statement on 12 February that non-doms using the remittance basis will not be required to make any additional disclosures about their income and gains arising abroad.
Provided that they declare their remittances to the UK and pay UK tax on them, they will not be required to disclose information on the source of the remittances.
The Chancellor also confirmed that the new rules for trusts would not be back-dated to include gains made in previous years, but said he would be sticking to plans to implement the broader changes.
Under the rules, which take effect in April, the 115,000 UK residents who declare themselves non-domiciles will have to begin paying tax on income and gains from UK investments held in offshore trusts. Gains on non-UK assets held in trusts remain exempt from taxation.
"People wishing to preserve tax-free status for investments will have to re-order their holdings by April," Mr Darling said.
"Some non-doms will simply elect to leave the UK, in which case we can assist them to relocate to the most appropriate jurisdiction and obtain a new residence," said Howard Bilton, chairman of The Sovereign Group.
"But for those non-doms who choose to stay in the UK, it is still possible to restructure their offshore arrangements legitimately to mitigate the worst of the effects of this legislation, the detail of which heavily penalises non-doms way beyond the headline £30,000 charge. There is still just time to make arrangements if swift action is taken."
One aspect of serious concern is that many non-doms hold their main UK residence through an offshore structure in order to avoid exposure to UK inheritance tax.
"Under the proposed legislation, this will now become liable to UK capital gains tax upon resale," said Bilton. "Crucially non-doms will not qualify for the CGT exemption that is applied to the main residence of UK-domiciled taxpayers. In other words non-doms are not just being brought within the UK tax net, they are being penalised as well."
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