Monday, 15 October, 2007

Vistra's view on UK pre-budget report.

As you may be aware the Chancellor revealed potential new changes to the tax laws governing UK resident but non-domiciled individuals and also for individuals non-resident, but ordinarily resident in the UK. To summarise, non-domiciled individuals, resident in the UK for at least seven years will pay an additional charge of £30,000 per annum, in order to avoid UK taxation on overseas income and gains. In addition, a change to the 90 day residence rule was also announced.

In fact, what both the Chancellor and the main opposition party have done is to confirm the UK's status as a tax haven for non-domiciled individuals, ending years of speculation of "will he won't he abolish the non-domicile rules". Last week saw a clear indication that non-domicile is here to stay, but at a small cost. 

The new rules are intended to come into effect from 6 April 2008. Years of tax residence prior to 6 April 2008, will however count towards the seven years. The effect of the rule is that, if an individual wishes to retain non-domicile status and therefore be subject to tax only on remittances from offshore, a £30,000 charge will be levied per annum. If not, then the individual will in effect be domiciled in the UK. 

The proposed £30,000 per annum charge for the non-dom status will be for most people a small cost compared to the benefit gained, which we think is the rationale behind the charge. 

There has been some talk that the £30,000 charge will put off those who wish to claim non-domicile, but are not yet in a position to benefit from it, because their foreign income (unremitted) is too small to justify paying the £30,000 charge. We at Vistra disagree, as the de minimus level of £1,000, will allow clients to claim "non-dom" status, keep under £1,000 of unremitted foreign income and not pay the £30,000. They are able therefore to plan when they need to start paying the charge.   

We have already identified several ways of mitigating against the new rules for the benefit of our clients but as the full changes, such as "ceased source" rules and anti avoidance provisions against conversion of income into capital, are not yet known, and will be going to "consultation", it is too early at this stage to release our full proposals.   

The proposed legislation regarding the 90 day rule, is for most clients not an issue, but it will mean that ex-UK tax residents will now have to plan their visits to the UK in a better way, as the concession for days of travel has now been withdrawn. This may mean some frequent travellers could be in danger of being ordinarily resident. The new rules will still allow 18 working weeks in the UK, which for most will not be a problem. 

We will be releasing a detailed synopsis on this matter when the draft bill is published and will be providing regular updates to all our clients.  In the meantime should you have any queries please email Greg MacRae or call him on +44 207 268 2430.



The contents of this document are made available for information purposes only. Nothing within this document should be relied upon as constituting legal or other professional advice. Neither Vistra Holdings Limited nor any of its companies, subsidiaries or affiliates accept any responsibility whatsoever for any loss occasioned to any person no matter howsoever caused or arising as a result, or in consequence, of action taken or refrained from in reliance on any of the contents of this document.