As part of a package of measures the UK government’s Treasury department has unveiled, it is consulting the industry on proposed rules that enable non-doms to avoid paying tax on their worldwide income that comes into the UK, so long as such cross-border money is invested in real enterprises. At the same time, the government has proposed to clarify the meaning of residency, for a long time an uncertain area. For instance, a person who enters the UK for the first time but is only in the UK for less than 45 days would always be treated as non-UK resident.

"The new proposals are generally positive - the first positive news for non-doms for a long time, but that has come after a long period of non-dom bashing,” Damian Bloom, partner at Berwin Leighton Paisner, told this publication in an interview.

 The current Conservative/Liberal Democrat government has also unveiled a new “investment visa” scheme designed to encourage wealthy investors to put money into the UK; finance minister George Osborne also stated in March that the current top income tax rate of 50 per cent would, circumstances permitting, be axed. In recent years, wealthy individuals, especially foreigners living in the UK, have been targeted for what were seen as previously unfairly low tax treatment.

The proposal to allow non-doms to bring their worldwide income and gains to the UK without a tax charge - so long as they are invested in commercial trading businesses in the UK - was a smart move, since the previous rules served to discourage people from investing global wealth in the UK, Bloom said.

"The main condition is that when proceeds are received from the sale of a business, the money has to be taken out of the country within two weeks. It is not clear how this will apply to the private equity industry".

The consultation runs until September, with draft legislation and further consultation to be issued in 2012, and the changes taking effect from 6 April 2012.

Remittances

Ian Miles, partner at accountants James Cowper was upbeat on the measures. 

He said the tax relief on remittances by an individual bringing in money for investment purposes to the UK would apply equally to remittances by the individual, their trust or company; however the investment can only be in a company.

“This will include holding companies, and within this private equity and venture capital companies could qualify.  It may be extended to include full and AIM-listed companies. The investment can be in shares (ordinary or preference), loan, or loan capital. The company must be a trading company and includes businesses undertaking development or letting of commercial property, financial services, manufacturing, retail, technology, and importing goods. Holding and letting residential property, leasing of moveable property (such as yachts and cars), and provision of personal services, are specifically excluded,” Miles explained.

Miles continued: “There is also a proposal to raise the remittance basis charge for those in the UK for 12 or more of the last 14 years to £50,000 (around $79,921). It will apply in the same way as the £30,000 charge for those in the UK for seven or more of the last nine years, with the flexibility of opting in and out of the remittance basis each year.”

“A further proposal is an extension to the exemptions for assets imported to the UK without triggering a remittance to cover ‘exempt’ assets brought to the UK for sale. ‘Exempt’ asset is not defined but the consultation suggests that this will not be restricted. The proceeds must be withdrawn from the UK within two weeks of sale, or the income and gains originally used to purchase the asset will crystallise as a taxable remittance,” he said.

“Further tax relief is proposed to mitigate the penal remittance identification rules where nominated income is brought to the UK. The relief applies where £10 or less of nominated income is remitted in a year. Nominated income is usually a minimal amount, and any remittance inadvertent. The implications can be disproportionate and this would be a sensible relaxation in the rules,” he added.

Proposed new tax rules for ‘non-domiciled’ people who invest in companies which carry on a trade, or develop or let commercial property, are likely to give a welcome boost to the enterprise and SME sectors, said Smith & Williamson, the accountancy and investment management group.

“In essence, the proposed new rules… will give generous tax breaks to ‘non-doms’ who invest money from overseas in UK companies. Importantly, there will be no minimum or maximum investment and people will not have to work in the business receiving the investment – although it is perfectly acceptable if the individual or their family are involved with the organisation,” said Tim Lyford, head of corporate tax at Smith & Williamson.