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All change for non-UK domiciliaries

The UK has long been known as a tax haven for foreign nationals looking for a low tax jurisdiction. It's not that the UK has particularly low taxes. It's the way taxes are applied for individuals considered non-UK domiciled. This favourable position has existed for years, largely due to Britain's colonial past. Some changes were made, largely in the 1990s, with the most significant taking effect from 6 April 2008. So be warned if you're considering a move to the UK.

A year on from these changes, we're seeing non-doms leaving the UK sooner than they may otherwise have done and less new, wealthy and entrepreneurial individuals coming to the UK from overseas as the UK has become less attractive. The impact on the economy is rather blurred by the current, wider issues but the tax changes are certainly adding to the problems.

The old regime meant that non doms paid no tax on income and gains realised overseas, unless they brought that income or gains to the UK. This was known as the "remittance basis" and was favourable because income and gains realised outside of the UK were potentially not taxed anywhere.

But despite the benefits of the old rules to the wider UK economy, a new set of highly complicated rules kicked in as of this week which will be costly, in both time and money, to monitor and stay within, for those who wish to remain in the UK.

While UK tax resident non-UK domiciliaries can still choose to be taxed on the remittance basis, there is now charge of £30,000 to be paid if the individual has been resident in the UK for more than seven years. This is an annual charge for each year that remittance basis is claimed. If no fee is paid then individuals are taxed on their worldwide income and the incentive to stay in the UK rather than their home country is diminished.

No fee is payable for non-UK domiciliaries who have been resident for less than seven years but, in all cases (whether the £30,000 charge is paid or not), where a remittance basis claim is made the personal allowance and capital gains tax exemption will not be available. This could increase tax liabilities by a further £6,200.

Clearly, it would be necessary to have sufficient income and gains arising outside of the UK which are not needed for spending in the UK, before paying the £30,000 charge and losing allowances makes it worthwhile and this should be carefully reviewed before a decision is made. Income or gains should be nominated for the purposes of the charge.

Where no remittance basis is made, UK tax is due on worldwide income and gains so many more individuals will need to file a tax return. Given the complexities of claiming credit for foreign taxes already paid, they will probably need an advisor to do that for them, increasing their costs when there might be little further tax due.

So for many non-doms who are still in the UK they have a choice: declare income and gains on a worldwide basis, even if there is little or no further tax to pay or pay the £30,000 charge and fall into the complex rules which are only briefly outlined in this column.

It will be interesting to find out how much difference all these changes have really made to the tax take from non-UK doms or whether those staying in the UK and perhaps paying a little bit more have simply made up for all those who have left or are no longer coming here.

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