UK resident non-domiciled individuals may increasingly opt to pay tax rather than the £30,000 (around $43,700) charge introduced by the government in 2007, according to private client law firm Boodle Hatfield.
The levy, which formed part of new rules for UK resident non-doms, effectively meant that such individuals could ensure that income earned or capital gains realised on their assets outside of the UK remain untaxed, provided that these monies were retained outside the UK.
On its introduction, the government anticipated that the £30,000 charge would net the treasury more than £350 million annually. This now seems unlikely given the deterioration in the world economy, says Simon Rylatt, a partner in Boodle Hatfield’s Private Client and Tax team.
In 2008 the government introduced a new flat rate of capital gains tax of 18 per cent, compared to 40 per cent top rate of income tax, leading many to choose investments that give rise to capital gains rather than income.
In the current financial environment, such investors may actually generate losses rather than gains this tax year, notes Mr Rylatt. This, combined with the fact that income from investments has been hit hard by rock bottom interest rates, means that many individuals may not realise any benefit from the £30,000 charge.
“A non-dom would have to generate over £160,000 of capital gains (with no foreign income) in order to generate a tax liability equal to the new £30,000 non-dom charge,” said Mr Rylatt.
“Non-doms whose UK tax liability on their worldwide assets is lower than £30,000 may choose to pay tax on their foreign assets rather than the £30,000 charge. They may even be able to claim tax back if they elect to carry forward those foreign losses under special new rules.”