New tax relief for non-doms

On 6 December the Government gave details of the new tax relief for non-domiciled individuals set to be introduced in April 2012. On the whole, it is excellent news.

This new incentive for non-doms is designed to encourage investment in UK businesses. It means that from 6 April 2012 if non-doms invest in certain companies they will be able to bring non-UK income and gains into the UK without triggering a tax charge here. The companies must be private or listed on the Alternative Investment Market (AIM) or on the PLUS Market. They must be trading companies or companies developing commercial or residential property. Commercial (but not residential) property investment companies also qualify. Non-doms can invest as much money as they like. There is no restriction on the size of the shareholding and the non-dom does not need to be employed by the company to qualify for the relief.

The new tax relief only applies to non-doms who claim the remittance basis. For long term resident non-doms that will mean paying the £30,000 remittance basis charge (RBC). From 6 April 2012, non-doms who have been resident in the UK for 12 out of the previous 14 tax years will have to pay an increased £50,000 RBC to benefit from the remittance basis of taxation.

The details and draft legislation for the new tax relief came after a period of consultation by the Government during the summer. Mishcon de Reya provided a detailed response to the consultation in view of our significant experience advising on non-dom taxation. In our response we urged the Government to make certain changes to the original proposals so that the tax relief would be more attractive to our large non-dom client base. We are pleased to report that the Government has adopted many of our suggested changes.

We made it clear that there must not be an immediate tax charge if a non-dom invests in a business which subsequently ceases to qualify under this incentive through no fault of his own as an investor – for example, because the company is listed or it is no longer treated as a trading company. The Government has taken our comments on board and introduced a 45-day period of grace for the investment to be taken out of the company to avoid a tax charge.

Under the original proposals, if you sold your investment, you would have to remove the proceeds of sale from the UK or reinvest them in another qualifying company within a very short two-week period to avoid a tax charge on your original investment. We argued that this period was far too restrictive and would put people off investing altogether or, at the very least, discourage them from reinvesting the proceeds of sale in the UK. The Government has sensibly extended this time frame to 45 days.

The Government has also listened to our proposal that works of art brought to the UK by non-domiciled individuals purely to be sold here should not be subject to capital gains tax (CGT). We argued strongly that this would boost the UK art market and that without this concession, non-doms would continue to avoid selling in London. Draft legislation is being published early in 2012 to create a tax exemption in this area.

In our opinion the new business investment incentive will offer excellent tax planning opportunities for non-domiciled individuals from April 2012.

For more information please contact Andrew Goldstone.