Budget – non-domiciliaries

The £30,000 annual charge for non-domiciliaries, who have been UK resident for 7 out of the past 9 years, and who wish to be taxed on the remittance basis for non UK income and gains will be introduced from 6 April 2008.

The £30,000 will apply only to adults. The rationale behind the exemption for minors is somewhat doubtful but will lead to the adoption of some interesting mitigation techniques.

The charge will be redefined, so it will not be a poll-tax but, rather, a charge on unremitted income or gains. Whilst this will favour taxpayers generally, and is blatantly inspired by a need to cure the US problem inherent in the earlier proposals, the re-definition will come with ordering rules designed to match remittances to offshore income or gains which have been franked by an earlier payment of the charge. The ordering rules are not going to be straightforward in their operation and we suspect that convoluted and multiple offshore accounts will be need to be maintained in order to best take advantage of the franking.

The de-minimis level, under which the charge will not apply to those wishing to claim the remittance basis, will now be £2,000.

The use of offshore funds to settle the £30,000 charge will not represent a remittance but, it would appear, only where the funds are transferred direct to HM Revenue & Customs from an overseas bank account. This will, no doubt, be unpopular with those who have so fervently resisted the disclosure of overseas assets.

Offshore mortgages, used to avoid remittances, will be countered from 6 April, subject to existing mortgages being grandfathered provided they are not varied. The source ceasing, non cash imports and alienation techniques will also be countered.

The earlier proposals to revise the taxation of offshore trusts have been significantly curtailed, but will still necessitate much review (or should that be re-review) work for existing trusts. A facility for offshore trustees to re-base assets to their 6 April 2008 market value will be available and trustees will need to consider taking timeous advantage of the facility.

In summary, many will consider that the proposed changes are acceptable and not dissimilar to those which could have been expected should the government have entered into a period of proper, measured consultation before the announcements of change were made in October 2007 and January 2008.

It is, however, a shame that the amateurish process of arriving at this current stage has done no favours to the reputation of the UK, with existing and potential foreign investors now having good reason to run scared of what cack handed policy the government will next come up with.

The latest version of the proposals has yet to be accompanied by re-drafted legislation (which, in itself, is likely to contain surprises, intended or otherwise) but we do have the lame assertion that there will be no further changes in the lifetime of this parliament, nor in the next.

This attempt to shut the stability door, after many non-dom horses have already bolted, seems not only pathetic but, also, ill advised for a government which is going to be seeking re-election just at the time when it is going to be possible to start quantifying the extent of the lost tax revenues caused by the whole sorry episode.