Proposal for Non-Domiciled Investors
A new tax relief for non-domiciled individuals who invest in UK business will have no upper limit and be simple to claim, a recent Government consultation document promises.
In the March Budget, Chancellor George Osborne announced that from April 2012 non- domiciled individuals who are taxed on the remittance basis will not be taxed on overseas income and capital gains brought into the UK for commercial investment. The Government has now published more details, though these might change before becoming law.
Under the proposals, tax-free remittances will be allowed for investment in any company carrying out trading activity, or developing or letting commercial property. The only exclusions will be leasing and residential property letting – although building and developing residential property would be permitted.
There will be no upper or lower limits on the amount of investment that will qualify for relief, nor on the period for which it is held, but the investment will have to be in a company, not a business carried on by a partnership, sole trader or trust. The Government considers that investments in non-corporate businesses would present an ‘unacceptable risk of avoidance’, for example, by the use of partnerships to create artificial tax losses. No decision, however, has yet been made on whether the relief will be confined to investment in companies not listed on a recognised stock exchange. It will still be possible to invest in shares or loans.
Perhaps surprisingly, the Government will not limit the relief to investments made directly by individuals. Overseas income and capital gains held in offshore trusts or other investment vehicles will also attract relief. Another unexpected feature is that the investment can be in a company incorporated outside the UK and it will not have to trade wholly or mainly in the UK: it will be enough for the company to have a permanent establishment in the UK. Furthermore, investors can be connected with the company and draw ‘commercial remuneration’ for any work they do, for example, as directors.
There are some anti-avoidance rules. They are directed mainly at preventing non- domiciles taking out their investment to enjoy in the UK. When an investment is disposed of, the amount of the original investment will have to be taken out of the UK within two weeks of the disposal, or reinvested in a qualifying business in the same period. The relief will have to be claimed in the investor’s tax return.
Also starting in April 2012 will be the increased £50,000 annual charge for non-domiciled individuals who claim the remittance basis, and have been UK resident in 12 or more of the 14 previous tax years. That charge will not be affected by the new relief for business investments. The £30,000 charge will continue for individuals who have not been resident for as long, but in at least seven of the nine previous years. If an individual decides not to pay the charge, they will pay tax on all their worldwide income and capital gains in the year they arise.
The Government estimates that around 3,500 individuals will pay the £50,000 charge in 2012/13 and a further 3,500 will move to the arising basis.