Consider the economic impact of new residence and domicile tax rules

Published at 12:46 PM on 07 February 2008

Proposed legislation on rules for the taxation of non-domiciled individuals, intended to apply from April 2008, could have a detrimental impact on the UK economy, warns PricewaterhouseCoopers LLP. As drafted the new rules will make the UK a less attractive place for foreigners to live. The headline measure is the £30,000 ‘fee’ for using the remittance basis, which allows a non-domiciled individual to pay UK tax on foreign income and gains only to the extent brought into the UK, but this is in many ways the tip of the iceberg. The non-domiciled face being taxed in the UK on income and gains made in trusts they established before coming to the UK; this appears to extend to paying UK tax on overseas gains made years ago, often before the taxpayer was even UK resident. There is also a proposal to deny the personal income tax and capital gains tax allowance to anyone choosing the remittance basis. This would seem to apply immediately and not from the seven year trigger point for the £30,000 ‘fee’ - which will be an additional cost for many, including all US citizens. Leonie Kerswill, tax partner, PricewaterhouseCoopers LLP, commented: “The five million plus non-domiciled people in the UK affected range from wealthy entrepreneurs creating employment and investing in the UK through to people simply doing a job and paying their (UK) taxes. Many will be considering alternative locations to work and base themselves. Can the UK afford to see them leave?” Most non-domiciled individuals are employees and pay full UK tax on their earnings. The new rules will mean that where they also have more than £1,000 of overseas income they will need to notify HM Revenue & Customs (HMRC) and could find themselves paying more UK tax than a colleague with an identical salary package. Leonie Kerswill, tax partner, PricewaterhouseCoopers LLP, added: “The only sensible solution is to delay these proposals for a period of time to allow for proper debate. While further delay might add marginally to uncertainty, sensible reform after appropriate consultation would restore confidence in the UK's tax system and minimise the impact to our general economy.” The changes to the definition of residence – to include days of arrival and departure – appear reasonable on the surface. However, many more people will be drawn into the residence and domicile changes because the test is in terms of people becoming resident as regular visitors to the UK. Leonie Kerswill, tax partner, PricewaterhouseCoopers LLP, concluded: “With the cut off point at 90 days a year before residence status takes effect, the UK will be the easiest country in Europe to become tax resident in. That will no doubt lead to many disputes where people are mainly resident in another country. In turn this will absorb a lot of effort by both the tax authorities and taxpayers to no real tax result.”ENDS

For more information contact:

Frances Brown
Media Relations Executive, Tax, PricewaterhouseCoopers LLP 
Tel:020 7213 7258 
Mobile:07841 494 508 

Leonie Kerswill
Tax Partner, PricewaterhouseCoopers LLP 
Tel:020 7213 8588 


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