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Technical Briefing residenTial non-domicile Tax sTraTegies
James Quarmby, partner and
head of international taxation,
Thomas Eggar
“
Bonds are an
effective way of
capturing income
and deferring tax until
a chargeable event
occurs. Consequently,
individuals and
trustees alike will
be considering these
products carefully in
the future
Earlier this year there was
no shortage of news about
the taxation of non-domiciles.
But since the
Government’s partial uturn
in March, it has all
gone strangely quiet.
This is not because the
issue has been resolved to
everyone’s satisfaction; it is
more the case that most
non-doms have no idea
what to do next or, even
worse, are labouring under
the misapprehension that
there is no need for them
to take action.
It is clear that for resident
non-domiciled (RND)
individuals, life will never
be the same again. In
the old days they could
simply keep their foreign
income and gains abroad
and, as long as they were
never remitted to the UK,
avoid taxation.
This provision has been
swept away for those who
have been resident in the
UK for seven out of any
nine years, unless they pay
the £30,000 remittance basis
charge (RBC). In practical
terms, this means that RND
clients who have been in
the UK since before 2002
now have an awkward
decision to make: to pay
or not to pay? At the latest,
this decision needs to be
made by 31 Jan, 2010.
l Pros and cons
If a client does not have
annual foreign income of
at least £75,000 or gains of
£168,000 then clearly it is
not worth paying the RBC.
Even if they do have that
amount of income or gain
arising in a tax year, paying
the RBC is still not an
attractive option.
This is because it has
become clear from looking
at the legislation that
even if the RBC is paid and
foreign income of £75,000
is ‘nominated’, it is not
Combination
strategy
The UK remittance basis charge is not particularly
attractive for many resident non-domiciles as it does
not exclude them from other taxes. But there are
a number of options that could help them avoid
UK taxation on foreign income
possible to bring that
money into the UK without
a further charge to taxation
if the RND has other
foreign income and gains
in that year which have
not been remitted and tax
paid on them. This rather
undermines the principle
of the charge, which is
supposed to be a tax on
unremitted income.
Given that this is an
unpopular tax there is
clearly a market for strategies
to enable RNDs to capture
their foreign income
and gains without any UK
”
INTERNATIONAL ADVISER [www.international-adviser.com] DEcEmbER 2008
taxation and – crucially
– without paying the RBC.
Do not forget that we
are also concerned with
any income arising from
offshore trusts and companies
where the settlor/share
holder is an RND. So what
is the answer?
l Offshore bonds
Not surprisingly, offshore
life assurance bonds have
suddenly become more
popular. Bonds are an
effective way of capturing
income and deferring tax
until a chargeable event
occurs. Consequently, individuals
and trustees alike
will be considering these
products very carefully in
the future.
An additional attraction
is the ability to withdraw
5% of the bond annually
without any immediate tax.
But these products are not
so attractive for clients who
want to invest for capital
gains. This is because the
bond will eventually convert
gains into income
upon a chargeable event,
raising the effective rate of
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