Tim Walford-Fitzgerald, Partner, shares his thoughts about the announcement from the Labour Party to replace ‘non-dom’ tax rules.
In reality, the practical impact of this announcement is limited. The complexities and interactions of the modern world, coupled with more traditional considerations such as family stability, mean that the remittance basis still has a place in the UK tax system and limiting its scope below the current 15 years risks overlooking the human element in the decision making process.
Whilst relatively easy to administer – the mechanism already exists to remove access to the remittance basis after 15 years of UK residence. The UK gives credit for overseas taxes that have been paid on the same income or gain, so the Treasury would only receive tax in excess of the withholding tax that the overseas country takes before the income leaves their jurisdiction. The Remittance Basis does not allow for all tax on overseas income and gains to be avoided: after seven years in the UK there is a charge of £30,000 per year, rising to £60,000 after 12 years. Any monies used or enjoyed in the UK are taxable here, even after the sheltered period has ended.
For significant family wealth, it may be possible for significant sums to be enjoyed in the UK without any income or gains being taxable anyway regardless of the availability of the remittance basis, due to careful overseas planning.
It should be remembered that “non-doms” are not limited to the very wealthy. Many more modest individuals are not domiciled in the UK and the automatic remittance basis allows them to leave their savings in their home country without the requirement to certify UK residence, limit the withholding taxes applied on their investments and report the income in the UK. This is not a question of saving tax for the individual as many tax treaties do not allow reduced rates of withholding tax if the income is not subject to UK tax because of the remittance basis.
The UK is not alone in offering relief from domestic tax on overseas income and the UK would need to consider the corporate taxes as well as those of the individual when looking to change the rules. The more profit that is generated in a particular country, the greater the business tax that is payable there. There may also be an impact on other services that might be used by the individual and any accompanying family. The tax tail should not be allowed to wag the commercial dog!
The 15 years currently available broadly matches the time taken for children to pass through the UK school system, and this is a commonly cited trigger point for a non-dom family to leave the UK. Shortening this period may result in difficult family decision being made.
To discuss your specific circumstances, please get in touch with Tim.