Tax penalty for non-domiciliaries
Non-UK domiciled individuals who have lived in the UK for a long time will have to decide whether it is worthwhile continuing to claim the remittance basis of tax. From 6 April 2008, an individual who has been resident in the UK for at least seven years out of the previous ten will have to pay a £30,000 charge for each tax year they wish to use the remittance basis. Periods before April 2008 will count, so if you have already been resident in the UK for seven years, the change will affect you in the 2008/09 tax year.
Under the remittance basis, you pay UK tax on income arising overseas only when you bring it into the UK. Individuals who are not domiciled in the UK are currently taxed on the remittance basis on most types of income. The remittance basis also covers some income of individuals who are not ordinarily resident in the UK, and the new rules will also affect them.
If you have been resident in the UK for seven years and do not pay the charge, you will be subject to UK tax on all your worldwide income and capital gains as they arise. If you have no overseas capital gains, paying the charge will only be worthwhile if your unremitted income is more than £75,000.
Broad details of how the annual charge is likely to operate were announced in a consultation document on 6 December 2007. As part of the reform, people who use the remittance basis will lose entitlement to personal tax allowances, the annual capital gains tax exemption and some other reliefs. It will be possible to opt in and out of the remittance basis year by year.
You might be able to prepare for the new regime by rearranging your financial affairs, although the government has also promised to make it more difficult to avoid tax by using offshore trusts and companies. If you decide to give up the remittance basis, you will only be taxed on income and gains arising from 6 April 2008. You could therefore avoid UK tax by disposing of overseas assets before that date, provided you leave the proceeds overseas.
Tax planning for non-domiciliaries can be complex and other changes in the rules are being made, so professional advice is essential.