New proposals aid non-dom investment
A new tax relief for non-domiciled individuals who invest in UK business will have no upper limit and be simple to claim, according to a recent Government consultation document.
In the March 2011 Budget the Chancellor announced that from April 2012 non-domiciled individuals who are taxed on the remittance basis will not be taxed on overseas income and capital gains brought into the UK for commercial investment. The Government has now published more details, although they might change before they become law.
Under the proposals, tax-free remittances will be allowed for investment in any company carrying out trading activity, or developing or letting commercial property. The only exclusions will be leasing and residential property letting, although building and developing residential property will be permitted. The investment will have to be in a company, but no decision has been made yet on whether the relief will be confined to investment in companies not listed on a recognised stock exchange. It will be possible to invest in shares or loans.
Investment of overseas income and capital gains held in offshore trusts or other investment vehicles will also attract relief. Another unexpected feature is that the investment can be in a company incorporated and trading outside the UK, as long as it has a permanent establishment in the UK. Furthermore, investors can be connected with the company and draw ‘commercial remuneration’ for any work they do, for example, as directors.
There are to be some anti-avoidance rules. They are directed mainly at preventing non-domiciliaries taking out their investment to enjoy in the UK. When they dispose of an investment, the original amount invested will have to be taken out of the UK within two weeks of the disposal, or reinvested in a qualifying business in the same period. The relief will have to be claimed in the investor’s tax return.
Also starting in April 2012 will be the increased £50,000 annual charge for non-domiciled individuals who claim the remittance basis and have been resident in the UK in 12 or more of the 14 previous tax years. This charge will not be affected by the new relief for business investments. Those who decide not to pay the charge will pay tax on all their worldwide income and capital gains in the year they arise.