UK non-doms likely to opt to pay tax rather than levy
The downturn which has wiped £155bn off the wealth of the UK superrich could lead to non-domiciled residents opting to pay tax on their overseas investments rather than the £30,000 levy which the government enforced in 2007, according to a lawyer.
The government anticipated that more than £350m would be brought into the government purse annually by the £30,000 charge. Given the global recession, this seems unlikely, according to private client law firm Boodle Hatfield. Simon Rylatt, a partner in the Private Client and Tax team at Boodle Hatfield, said: “When the government first introduced these measures in November 2007 the world economy was in far better shape than it is today. Non-dom incomes, both at home and abroad, were likely to be higher and their capital gains significant.
In April 2008 the government also introduced a new flat rate of capital gains tax of 18%, far lower than the top rate of income tax at 40%. That change has lead individuals to choose investments that give rise to capital gains rather than income. “It is therefore possible that non-doms who have invested for gains rather than income will, in our current bleak economic environment, generate losses this tax year rather than gains,” said Rylatt. “Lower global interest rates also mean that individuals are generating significantly lower levels of income from their investments.” “A non-dom would have to generate over £160,000 of capital gains (with no foreign income) in order to generate a tax liability equal to the new £30,000 non-dom charge. Non-doms whose UK tax liability on their worldwide assets is lower than £30,000 may choose to pay tax on their foreign assets rather than the £30,000 charge. They may even be able to claim tax back if they elect to carry forward those foreign losses under special new rules.”
In 2007 the government introduced new rules for UK resident non-domiciled individuals, the 'non-doms' including the concept of a £30,000 charge. Effectively, in exchange for a £30,000 payment to HMRC, non-doms can continue to ensure that income earned or capital gains realised on their assets outside of the UK remain untaxed (provided that the income / proceeds of sale are retained outside the UK).
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