Non-doms – safe for the time being? Comment from Greg Jones, Tax Director at KPMG George Osborne’s 2011 Budget was all about making the UK business environment competitive. This is generally good news: a competitive, successful UK is still important for Isle of Man service providers. But amongst all the mass of detail three announcements in particular stood out for me as being worthy of mention. First and foremost, UK resident non-domiciliaries: as everyone knows, non-doms, as they are colloquially known, are generally taxed only on UK source income/capital gains, with foreign income/gains being taxed only when “remitted” to the UK. From 2008 non-doms who have lived in the UK for more than seven years are required to pay ?30,000 for each year in which they wish to claim the privilege of this “remittance” basis of taxation. Mr Osborne is now proposing that this charge be ?50k for non-doms who have lived in the UK for more than twelve years. As a development, this is probably no worse than might have been expected. Indeed, it is tempered by the news that no more tax provisions will be brought in aimed at non-doms for the life of this Coalition Government. Perhaps even more generously, and in the spirit of creating a competitive Britain, any non-dom who remits foreign (otherwise taxable) monies in order to invest in a UK business will not have to pay tax on the amounts remitted. I have long wondered what it would take for some UK politician of power and influence to wake up to the fact that the remittance basis of taxation in its present form is completely misguided: why exempt wealthy foreigners from UK tax on income they don’t bring into the country? Surely they need to be encouraged to bring their foreign wealth into the UK and spend it? Linked to the announcement on non-doms was the news that HMRC are finally to introduce a statutory test for determining UK resident status. Recent case law developments and changes in HMRC guidance have made it extremely difficult for even experienced advisers to advise on matters of residence. As things stand at present, someone who lives outside the UK but visits the UK on a regular basis for a settled purpose could be treated as UK resident by HMRC. It used to be the case that, provided visits to the UK did not exceed 90 days on average per tax year (ending 5 April) then he could be reasonably confident that HMRC would treat him as a non-resident regardless of the reasons for his visits. That is no longer the case. The introduction of a statutory test will therefore be welcomed by both taxpayers and advisers alike. The third announcement received fleeting coverage but could potentially be a significant negative development for Isle of Man service providers. The UK is to introduce rules to prevent double tax treaties being used to achieve a UK tax advantage. It is potentially a worrying development because, at present, Isle of Man companies and other entities are frequently used to eg trade in the UK under the protection of the UK/Isle of Man double tax treaty. This is known as “treaty shopping”, and certain other countries (most notably the US) have introduced rules into their own domestic tax regime to make it ineffective. Once again, we have no detail and in any event the changes are not scheduled to take effect until April 2012. However, it could seriously impact on the use of Isle of Man companies in UK tax planning. Having said all the above, another UK budget has gone by and we are still in business! For the time being, at least ..... -ENDS-