Moving away
4 Aug 08
The non-doms who face the £30,000 fee to avoid UK tax on overseas income have not rushed for the departure lounges, but Andrew Beach finds many experts fear it could drastically reduce London's - and the UK's - attractiveness in future
by Andrew Beach
Fears that changes to the tax status of non-domiciled overseas citizens in the UK would lead to a mass exodus of foreign bankers and technocrats seem to have been unfounded, but advisers say there remain plenty of problems with the Government’s approach, and the way it has been implemented.
Since the announcement in last year’s Budget that non-doms who had lived in the UK for more than seven years would have to pay a £30,000 fee or face UK taxation on their entire overseas earnings, strenuous objections have been voiced.
The House of Lords committee looking at the matter fired a broadside at the Government, saying in June that the changes had been “poorly handled and may have damaged the UK’s international competitiveness”. It went on: “The perception that the system is unstable and subject to severe shocks cannot be good for the competitiveness of the UK economy.”
Others have been equally uncomplimentary. Andrew Jupp, national head of tax at Tenon, agrees with the Lords’ comments. “There have been a large number of areas of tax policy over the last couple of years where there has either been no consultation or the consultation has been derisory,” he says. “The number of U-turns that the Chancellor has taken in the last year shows that the thought process wasn’t right in the first place, and I suspect we have more U-turns to come.”
Alex McDougall, senior tax partner with HW Chartered Accountants in Edinburgh, says that the Government approach in presenting what it admitted was an incomplete bill was “almost unique, and many people have taken it to task for doing that”. As a result, though the legislation came into effect on 6 April, final details weren’t available until July.
He says that while the main thrust of the legislation was unaltered, the Government had made some significant changes. A key amendment had been to recharacterise the £30,000 payment as a tax rather than a levy in the hope that other countries, such as the US, would credit it for double taxation purposes. However, the US Internal Revenue Service, has said it will not confirm its view of the matter until it becomes law in the UK.
McDougall says other changes included amendments to the definitions as to what a remittance was as far as income and gains arising before 6 April 2008, along with many adjustments relating to trusts and companies owned by trusts, where the trust had taken actions before 6 April but remittances had come into the UK after that date.
Robert Hodkinson, partner with global employer services at Deloitte, says the rules presented significant compliance problems, as income from many US investment vehicles that would be covered were not previously subject to UK tax. “There is a whole raft of complexity that is being brought about by this, even though on the face of it looks fairly innocuous.
“The process was rushed through, and it was not HMRC’s fault – it was political and they were driven into putting in some legislation without a lot of appropriate thought. It is far from satisfactory.”
Tenon’s Andrew Jupp says that there has been no evidence of a rush by non-doms out of the country, but he adds: “When large multinational companies are considering where to have European headquarters, I don’t think London is necessarily going to be a preferred location anymore.”
The view that wealthy non-doms are not yet ready to pack their bags is supported by a study for Barclays Wealth which says it is the first into the attitudes and views of the UK’s non-dom community since the new measures came into effect. The study, conducted by wealth management strategists Scorpio Partnership, canvassed advisers estimated to have advised at least 50 per cent of the UK’s non-dom population.
It found that while the changes had altered non-doms’ attitudes, they recognised that the UK remained the best place to be with resident non-domicile (RND) status. The opportunities it offered were hard to duplicate elsewhere, and RNDs were unwilling to leave the UK solely for tax reasons. Barclays Wealth says there were more practical considerations, including the education of children, culture and London’s ambience as one of the world’s great cities.
It notes that London retains a “critical mass” of hedge fund managers and financiers, but warns that these professionals are highly mobile, so this situation could change rapidly if only a small proportion of them leave.
Peter Horrell, managing director of Barclays Wealth Intermediaries, says: “The decision process for non-domicile international professionals is more complex than previously as they now have to think a little harder about whether to move to, or remain in, the UK – but once they have clarity on the impact of these changes and how they affect them, they are able to realise the many other benefits of living in the UK.” n
ANDREW BEACH is a senior editorial executive with Connect Communications.