Despite the recent reforms to the taxation of UK resident non-doms which came in to force with effect from 6 April 2017, there are still significant tax advantages for such individuals.
So if you have clients who are UK resident non-doms, how much tax should they be paying in the UK?
Foreign worker exemption
An exemption may be available if your client is not UK domiciled and they work both in the UK and abroad. An individual will qualify for the exemption if:
- income from working overseas is less than £10,000;
- other foreign income is less than £100;
- all overseas income has been subject to tax where it was earned (even if no tax was in fact paid due to allowances and exemptions);
- the combined UK and foreign income is no more than the basic rate of income tax.
In such circumstances, they will not need to pay any UK tax on foreign income and gains (even if remitted to the UK). It will also not be necessary to file a tax return with HMRC – unless they have a requirement to file for another reason.
Overseas workday relief
A UK resident non dom may be entitled to claim Overseas Workday Relief if they are seconded to the UK.
The effect of a claim to Overseas Workday Relief (OWR) is that the part of the earnings from a UK employment which are performed wholly or partly overseas are treated as a foreign source of income, and provided that the individual has claimed the remittance basis and the income in question is not remitted to the UK it will not be subject to UK tax.
The individual is advised to open an offshore bank account to receive these earnings (“the nominated account”). The nominated account must be an overseas bank account in their own name and must have a balance of no more than £10 on the day that the first deposit of qualifying earnings from employment is made into the account.
Business Investment Relief
Business Investment Relief is available to UK resident non doms who claim the remittance basis. Business Investment Relief may be claimed in respect of foreign income and gains remitted to the UK provided that they are used to make a qualifying business investment within 45 days of the remittance.
The business into which the investment is made must be an unquoted trading, stakeholder or holding company which meets certain conditions. AIM listed companies are treated as unquoted for these purposes. The business must be carried on commercially and with a view to profit.
The investment may be a subscription for new ordinary or preference shares or a loan to the qualifying business. Since 6 April 2017, the acquisition of existing shares in the business can also be a qualifying investment.
The investee business must carry on a business which is treated as a trade for corporation tax purposes, which includes a business whose income derives from land or property or one carrying out research and development activities intended to lead to trading activity.
Business Investment Relief is not available if the investor or persons connected with the investor, receive, expect to receive or are entitled to receive a benefit from the target company, directly or indirectly, unless such benefit is received in the ordinary course of business (e.g. as salary, ordinary dividends or loan interest). From 6 April 2017 onwards, business investment relief will only be restricted if benefits received are directly or indirectly related to the investment.
The Remittance basis
Foreign income and gains less than £2,000
UK resident non doms do not pay UK tax on their foreign income or gains if they are less than £2,000 in total in a tax year and they are not remitted to the UK. In such circumstances, there is no requirement to report the unremitted foreign income and gains on a tax return.
Foreign income and gains of £2,000 or more
If an individual has foreign income or gains of more than £2,000, they must be reported on the individual’s UK tax return. The individual has the choice of whether to pay UK tax on the income or gains in the same way as a UK domiciled individual (i.e. the ‘arising basis’) or to claim the remittance basis if this is beneficial. The effect of a claim to remittance basis is that only income and gains brought into the UK (‘remitted’) are taxed in the UK.
However, this is subject to a number of conditions. An individual will lose personal allowances and exemptions and, if he or she has been resident in the UK for a certain number of tax years, will have to pay an annual charge in order to use the remittance basis.
From 6 April 2017, only individuals who have been UK resident for 15 or fewer years in the preceding 20 can claim the remittance basis. No remittance basis user charge is payable in the first seven years of UK residence. If your client has been resident in the UK for more than 7 years out of the preceding 9, the remittance basis user charge is £30,000. A charge of £60,000 is payable if the individual in question has been resident for 12 years out of the preceding 14 years.
Enterprise Tax Consultants can advise on Non Dom tax
As experienced tax consultants, ETC can provide tax compliance, management and planning advice across all areas of UK non dom tax, including liability, reliefs, exemptions and wider planning issues in the context of your clients’ international tax status.
Our services include:
For advice, contact one of our chartered tax specialists.