The consultation issued by the Government outlining proposed changes to the taxation of non-UK domiciled individuals, increases the remittance basis charge but encourage foreign investments in the UK. The remittance basis charge goes from the current £30k to £50k, only applied to those resident in the UK for 12 years or more.
It is being proposed that an investment made by a non-UK dom individual into a company with trading activity in the UK or investing in commercial property in the UK will not be deemed a remittance and therefore no UK tax would be triggered on the foreign source income or gains.
As reported by Grant Thornton UK, the definition of ‘business’ is surprisingly wide and it is likely to be particularly attractive to the non-UK domiciled community that commercial property investment and letting has been included. Although it will be disappointing to some, the exclusion of residential property is not surprising given the policy objective.
Investments in companies operating nursing homes and hospitals are to be excluded from the definition of residential properties for these purposes and are therefore ‘allowed investments’.
Investments must be made into companies although there is no requirement for the company to be incorporated in the UK.
Although currently excluded, the Government have also invited views on whether fully listed companies should be included. In addition, it does not matter whether the investment is into share or loan capital of the business and there is no limit on the amount which can be invested. Interestingly, there is no restriction on the involvement that the person or their family can have in the investee company.
Commercial remuneration can also be drawn but as expected, there will be provisions to prevent an investor taking non-commercial payments from the business.
A few difficulties
As always, there are a couple of difficulties which may arise, firstly with the fact that in order to avoid a remittance if loans are repaid or the shares of the company are sold, the funds must be transferred offshore within 14 days of receipt. This timescale is clearly quite tight and care will be needed to avoid inadvertently creating a remittance and hence a UK tax charge.
The relief will need to be claimed on the individual’s tax return including disclosing the amount invested and the name of the company in to which the investment is made, thereby giving HMRC more information on a non-UK domiciled person’s affairs than is currently the case.
Consultation now open
The consultation also includes some proposed changes to simplify the procedure for claiming the remittance basis, which are generally welcomed.
Overall, while the initial news of a £20k increase in a remittance charge was seen as a red flag to those non-doms considering long term stays in the UK, the consultation shows that the Government is clearly keen to send out a message that the UK is open for business. The proposed changes offer significant encouragement to bring money into the UK for non-doms who are investing in UK trading companies and commercial property investments.