The remittance basis of taxation is available to be claimed by UK resident individuals who are not domiciled in the UK (non-doms). Where individual remittance basis claimants are long term resident in the UK they are liable to pay an additional tax charge, known as the remittance basis charge, depending on the time they have been resident in the UK.
Changes to the tax regime of non-doms
From April 2015 the remittance basis charge was increased for those resident in the UK for at least 12 out of the previous 14 tax years from £50,000 to £60,000 and a new charge was introduced of £90,000 for those resident in the UK for at least 17 of the previous 20 tax years.
Further changes were introduced from April 2017 following which all non-doms who have been UK resident for at least 15 of the previous 20 tax years become deemed UK domiciled for income tax, capital gains tax and inheritance tax (IHT) purposes. This means they are no longer able to claim the remittance basis and are liable to UK tax on their worldwide income and gains and to UK IHT on their worldwide estate, subject to any relevant double tax treaty provisions. In addition, individuals who were born in the UK with a UK domicile of origin but who later acquire a domicile of choice elsewhere (returning non-doms) are treated as domiciled in the UK as soon as they become resident in the UK.
The aim was to make the UK tax system ‘fairer’ as between those taxed on an actual basis and those on the remittance basis and was expected to bring in more revenue. Some commentators expressed concern that it would impact the attractiveness of the UK as a base for non-doms.
Transitional reliefs were enacted to encourage wealthy non-doms to stay in the UK. These measures included:
- capital gains rebasing of non-UK assets for long term UK residents who could no longer claim the remittance basis from 6 April 2017;
- a two year period to segregate ‘mixed funds’ containing a mixture of income, gains and/or capital to enable funds to be remitted to the UK tax efficiently; and
- a new ‘protected trust’ regime where offshore trusts settled whilst the settlor was non-UK domiciled can roll up income and gains without UK tax which would then only apply on distributions/provision of benefits.
Impact on the attractiveness of the UK non-dom regime and the UK as a base for non-doms
HMRC’s published statistics show the number of taxpayers claiming non-UK domiciled status has fallen each year from 6 April 2014.
After the major change in non-dom tax legislation in April 2017, the number of taxpayers claiming non-dom status in the 2017/18 tax year fell by 12,200 (13 per cent) and the amount of revenue generated decreased from £9.4bn to £7.5bn, so by a disproportionate amount to the decrease in claimants. This would suggest that those that had paid the most tax are no longer claiming the remittance basis – approximately half of these people have left the UK and the other half are now deemed UK domiciled (and so are paying tax on their worldwide income and gains).
HMRC has stated that this latter group paid approximately the same in tax and National Insurance contributions in 2017/18 as they paid in 2016/17 – this could be for a variety of reasons, but could indicate that their tax on offshore sources is broadly similar to the remittance basis charge anyway, or that they have made use of the reliefs outlined above.
The statistics also show that the amount of tax each non-dom has paid has fallen, which could also indicate that the 6,000 that have left the UK were paying the most tax. The average tax per non-dom was £96,284 in 2017/18 compared to £104,851 in 2016/17.
What planning can UK resident non-doms consider?
Those who are not already deemed UK domiciled (having spent less than 15 tax years resident in the UK) can consider settling foreign trusts to hold investments.
A suitable trust structure can provide an opportunity to safeguard a person’s non-UK estate, allowing overseas wealth to continue to grow without being reduced by UK taxes.
These ‘trust’ protections are however easily lost and, as such, it is essential that offshore trustees take professional UK tax advice on the setting up and running of such trusts.
RSM has significant experience in advising trustees on the UK tax implications of such structures. If you have any questions regarding the above, please feel free to get in contact with Alex Foster, Shairoz Goddard or your usual RSM contact.