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Cautious welcome for non-dom investment law


11 April 2012

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Wealthy non-doms will cautiously welcome new legislation allowing individuals domiciled outside of the UK to make unlimited investments into commercial businesses without incurring income or capital gains tax liabilities on the funds used for the purpose, according to law firm Boodle Hatfield.
The relief came into effect on 6 April 2012 is available to those individuals who are resident but not domiciled in the UK and who opt to be taxed on the remittance basis and to pay the remittance basis charge. The number of wealthy non-doms choosing to pay the annual remittance basis charge has been low, but the government hopes the relief may encourage some of the wealthiest resident non-domiciles to pay the charge whilst helping UK businesses.
Geoffrey Todd, a partner in the private client and tax team at Boodle Hatfield said: “This is potentially an attractive and valuable relief for non-doms and a welcome source of additional potential investment for UK businesses. 
“Resident non-domiciles may find it particularly helpful that the rules will allow them to invest into companies that they themselves own or work in, subject to various anti-avoidance rules, and in a wide range of trading businesses, including those involved in commercial property.” 
There are however, some notable limitations. Todd explains: “Investments cannot be made into partnerships and PLCs listed on the London Stock Exchange, although investments on the AIM and PLUS exchanges are permitted. Nor can investment be made into a residential property company whose primary business is lettings.
“Investors must take care,” he continues. “If the investment is cashed in and the funds are not withdrawn from the UK or reinvested within 45 days, a remittance of the original foreign income and gains used to fund the purchase will be deemed to be made at that point.”
The latest legislation contained in the draft Finance Bill 2012 contains an interesting additional concession that a proportion of the proceeds of sale can be retained in the UK without triggering a remittance for the purposes of paying UK CGT.
Todd concludes: “This is a complex relief and there are a number of potential pitfalls. Investors should keep a close eye on those companies in which they invest, as a change in their status – such as a stock market listing – would automatically remove the relief, leaving the investor with an unwelcome tax liability. 
“Generally, this relief is welcomed and will best suit wealthy well advised non-dom investors who intend to take a keen interest in the companies in which they invest.”

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Tax & Wealth structuring