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Non-domiciled UK residents face tax levies

29 January 2008

From 6 April 2008 non-domiciled UK residents ('non-doms) who bring foreign income into the UK could face tax levies of up to £50,000. As announced in the Chancellor's pre-budget report on 9 October 2007, non-doms who have lived in the UK for seven out of the previous ten years will be able to elect to pay a flat levy of £30,000 per year in their self-assessment tax return. It is proposed that those who have been resident in the UK for ten of the previous twelve years, pay a levy of up to £50,000.

The 'de minimis' foreign income to qualify under the new legislation is only £1,000 per year, but the Treasury estimates that it will only be economic for individuals to pay the £30,000 levy if they receive over £80,000 in foreign income per year and £130,000 if they are liable to pay the £50,000 levy. So, if it is more economic to do so individuals can, instead of paying the levy, choose to pay UK tax on all their world-wide income. As the levy will be paid via self-assessment tax forms, this is a decision that can be made on an annual basis.

Under the proposals, individuals electing to pay the levy will lose their entitlement to claim any personal, married or blind person's allowance. Bringing goods (such as cars) purchased with foreign income into the UK may well incur a tax charge on the original purchase price too, regardless of devaluation. In addition, it is proposed to change the rules so that arrival and departure dates will now be counted in order to determine the length of someone's stay which may concern regular visitors to the UK who want to avoid becoming a UK resident for tax purposes. From 6 April all non-domiciled individuals who have been resident in the UK for more than seven years will be subject to these rules.

The Society for Trust and Estate Practitioners (STEP) has warned the Government that this may lead to many investors moving their money off shore or not bringing it into the UK, indeed, it is also proposed that the beneficiary on an off-shore trust may be subject to a future tax liability if the money is subsequently brought into the UK. Furthermore, STEP have also said that the move may discourage foreign companies from sending workers to the UK, particularly American bankers (approximately 50% of non-doms work in the financial and business sector). However, as the consultation closes on 28 February and the proposed legislation is due to come into force on 6 April there is little time for amendments.

Partner, Jeremy Mills, commented: "These are drastic and far-reaching changes and any individuals who may be affected should consult their professional advisers as soon as possible, either with a view to possibly re-structuring their investment portfolios, will and trust arrangements once the new legislation has been finalised, or to protect their position in advance of 6 April."