At the start of this Parliament, the Chancellor introduced changes to the non-dom rules and, at the same time, promised no more; thereby assuring us all that there would be some badly needed stability to these rules.
Since then we’ve had various changes (not all of which were intended to raise revenues – e.g. business investment relief) including ATED and CGT-ED (clearly aimed at, amongst others, non-doms) and HMRC recently reversing its stance on its remittance treatment of loans backed by unremitted foreign income or gains. Today we have an increase in the remittance basis charge (“RBC”) together with a consultation suggesting that this increase will, in fact, be three times more draconian than it looks.
The RBC now works as follows:
– for non-doms who have been UK-resident for 7 out of the last 9 tax years, the RBC will remain at £30,000;
– for non-doms who have been UK-resident for 12 out of the last 14 tax years, the RBC will increase from £50,000 to £60,000; and
– for non-doms who have been resident for 17 of the last 20 tax years, an entirely new RBC of £90,000 will be introduced.
The Chancellor also announced that the Government will be consulting on making remittance basis elections apply for a minimum of 3 tax years (at present non-doms can make a remittance basis election on a year-by-year basis). The suggestion is, therefore, that if you make a remittance basis election, you will have to pay three lots of RBC.
What does this mean?
Where a non-dom elects to be taxed on the remittance basis in respect of a tax year, all of his or her income and gains arising from sources outside the UK during that tax year will not be subject to UK income and capital gains tax, provided they are not remitted to the UK.
Before 6 April 2008, a non-dom could elect, without any additional tax charge, to be taxed on the remittance basis for any given tax year. Since 6 April 2008, however, non-doms who have been resident in the UK on a long-term basis have been required to pay the relevant RBC in each tax year for which they make a remittance basis election.
Today’s increases in the RBCs (in particular the new £90,000 charge) is, not only a tax increase, it’s a signal that non-doms (and the remittance rules that apply to them) are, once again, fair game. Not all non-doms own super-yachts and Premiership football clubs and the instability in our tax system cause many of them concern and to question whether they would be better to relocate elsewhere.
When coupled together with the suggestion that a non-dom will need to pay three RBC charges in consecutive years, today’s news will be particularly badly received. Currently a non-dom / his advisor will, each tax year, compare the amount of tax payable on the arising basis against the amount of tax payable on the remittance basis (factoring in the RBC and the likelihood of some of the unremitted foreign and income or gains being intentionally – or mistakenly – remitted in the future) and choose whether or not to elect for the remittance basis on the outcome of this comparison. Carrying out this comparison in relation to one tax year can be quite complicated. However, where it has to be done for three tax years (two of which have not yet occurred) a crystal ball is required.
The bigger picture
Whilst this, undoubtedly, represents fantastic vote-winning policy for the Tories, it simultaneously makes the UK’s non-dom rules very much less generous than before and, once again, apparently unstable. Some may advocate that this is a good thing. However, would London be the thriving cultural city that it is without these rules and what would happen to it were they to be withdrawn or terminally eroded?
Opinions on this tend to be divided (I find few fence-sitters on the subject) but one thing is clear – the current political establishment see the RBC as a tax and, like all other taxes, it’s one that they will want to tinker with for their political gains. Since attacking non-doms is a vote winner, over time, the amount of the RBC will only be going in one direction.