The taxation of UK resident but non-domiciled individuals (the so called non-doms) has caught the media's attention since first announced by the Government in the pre-budget report last October. The final legislation became law on 21 July in the Finance Act 2008 and is substantively different from the draft released in January.
Most of the discussion has centred around the £30,000 annual 'charge' non-doms are now required to pay in order to avoid paying tax on foreign income and gains in the tax year they arise. If non-doms pay the charge then they will only have to pay tax on their foreign income or gains when they actually bring the money into the UK. The concept sounds relatively straight-forward.
However, when you look to the detail of the legislation, it is clear that the £30,000 charge creates a great deal of complexity. It was hoped, following statements in the budget, that the £30,000 could be 'offset' against tax due when income and gains are brought into the UK. This, it was claimed, would assist US citizens living in the UK so that they could claim the payment against their US tax liability.
The legislation states that the £30,000 will only reduce the amount of UK tax payable after a non-dom has brought in all other income and gains for the tax year. However, because non-doms will not necessarily remit all of their income and gains each year, the £30,000 payment may still have the feel of a stand-alone annual charge. There is a complex system of 'nominating' income and gains which will place an increased emphasis upon careful record keeping.
Another example of how the rules may cause confusion relates to the treatment of assets purchased overseas and brought into the UK. From 5 April any asset derived from offshore income or gains - such as works of art, motorcars or yachts - and brought into the UK will be liable to a tax charge. There are some exceptions, such as assets in the UK for repair or restoration, located in the UK on a temporary basis which is considered 275 days or less, or which meet public access rules such as works of art in a museum.
However, the rules are going to be interesting to work through in practice. It seems that a yacht bought out of foreign income and gains will now become liable to tax if it stays in UK waters for over 275 days. But what if the yacht then needs repairing? What counts as a repair? The legislation seems far from 'water-tight'.
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