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Over the last week, we’ve seen the dangers of ‘fake news’.
But can ‘fake tax’ be dangerous in financial terms? By ‘fake tax’ I am referring to common misconceptions about our tax rules.
For instance, last week I was talking to a contact of mine who is based in Hong Kong. He has a client who is looking to move to the UK.
As one might expect, the remittance basis of taxation was heavily discussed as these individuals would be non-UK domiciled.
If you are the same as me, at least until a People’s Republic of Yorkshire is declared, and both UK resident and domiciled, then you pay UK tax on your worldwide income and gains.
However, if you are UK resident but non-domiciled, then you can potentially avail yourselves of the remittance basis. Essentially, this affords one the privilege of leaving one’s foreign income and gains outside of the UK without suffering tax.
Broadly speaking, for the first 7 years of residence, the remittance basis is ‘free of charge’. However, where one becomes a long-term resident of the UK (after 7 years) then one effectively pays £30k for this treatment. After 12 years, this increases to £60k
But if they bring those funds to the UK then they are subject tax. It does not matter whether one has paid the charge or not.
As I say, the remittance basis merely affords the privilege to leave one’s foreign income and gains offshore without paying tax.
It is this last point which is oft missed.
As per my call today, it is not like, say, the Swiss forfait (and other similar agreements) that cap the amount of tax a High Net Worth Individual pays.
It is isn’t the first time I have encountered this misconception.
Further, on a different note in relation to non-doms, we have an attractive, and almost unheard of, relief called Business Investment Relief.
This cheeky little number allows a non-dom to remit that ‘idle’ overseas income and gains to the UK to use in UK commercial activities without paying tax on the remittance. Further, what constitutes a UK commercial activity is incredibly wide.
For me, this is a highly attractive relief for taxpayers that qualify. In addition, it was also a shrewd move by the then Chancellor George Osborne to help tax those work-shy funds that lay outside of the UK economy.
The problem has been, and remains, that most people do not know about such a relief.
These are but the tippiest tip of iceberg when it comes to the UK tax code, misconceptions and backwater reliefs.
But should we be surprised of their prevalence?
Sadly, with our labyrinthine tax code, we should not.
If only we had some kind of organisation… perhaps an Office…. whose role it was to simplify the tax system. Some kind of Office of Tax Simplification, for instance?
If you have any queries about this article, or tax matters in general, then please get in touch.