Moving goalposts: remittance charges

George Osborne made his last pre-election Autumn Statement of this parliament on 3 December 2014, offering a number of crowd-pleasing lollipops. The changes to the remittance basis is a story that will play well with the part of the media that takes the view that non-doms who are resident in the UK do not pay enough tax.

From the point of view of the non-doms themselves however, the significant increase in the amount of the remittance basis charge for long term residents (17 years plus) will be unwelcome. The consultation on making it possible to change an election in or out of the regime only every three years, rather than annually as it stands currently, will trouble those who have used this as a way of planning their way out of the full rigours of the charge.

Non-doms and the tax advantage of their status

UK resident non-doms are people who spend sufficient time in the UK to be classed as tax resident here, but for whom the UK is not their permanent home. There are many angles to the concept of domicile, but the key factor is that there is a country other than the UK with which they have a stronger enduring connection. Where a person is domiciled is a question of fact.

Being a non-dom has long been a very advantageous status for UK tax purposes. As well as possible inheritance tax (IHT) advantages, it may allow an individual to pay tax on the basis that any income and gains they hold offshore are only taxable as and when they are brought into the UK.

In response to mounting media outrage, successive governments have eaten away at the edges of this system which has its roots in history. Wholesale removal of non-dom status has not been regarded as a politically acceptable option, on the basis that non-doms bring worthwhile revenue and entrepreneurial spirit into the UK and would take it elsewhere if not welcomed.

The key initial restriction on the remittance basis was the 2008 introduction, for those who had been in the UK for more than 7 relevant years, of a 'fee' or charge to be able to use the remittance basis. Those not willing to pay the charge are liable for UK tax on their worldwide income and gains, subject to the benefit of any applicable double tax treaty.

Changes to bands

Currently, the charge is £30,000 per annum for non-doms who have been resident for seven out of nine tax years, and this will remain unchanged. The charge for the next tier, those who have been resident in the UK for 12 of the past 14 tax years, will increase from £50,000 per annum to £60,000 per annum.

A wholly new level of charge will be introduced for those who have been resident for 17 of the past 20 tax years, which has been set at £90,000 per annum.

Those familiar with the IHT position of non doms will immediately recognise the similarity of the 17 out of 20 years to the test for acquiring a 'deemed domicile' in the UK, which brings worldwide property into the IHT charge.

It is interesting to speculate whether HMRC expect that the income and capital gains tax compliance will enable them more easily to identify individuals who have become IHT deemed domiciled, but who might otherwise have slipped through the net.

The way in which the 17 out of 20 tax years is calculated for IHT purposes means that in practice, it can become effective after little more than 15 years, and this trap will affect the £90,000 remittance charge band too.

The intention is for these changes to the remittance charge bands to be included in the 2015 Finance Bill, so it seems that this is likely to go ahead before the election.

The sting in the tail

Mr Osborne announced that the government will consult on changing the rules so that an election to pay the remittance basis charge applies for a minimum of three years before it can be changed. Currently there is the scope to opt in or out of the remittance basis each year and for some non-doms, this can be an advantageous way to minimise the tax cost of UK residence.

The time that will be needed for the consultation means that this is likely to be implemented, if at all, in the next parliament.

Helen Ratcliffe is head of private client at Bircham Dyson Bell

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