Conservative Party plans to affect non-domiciles?

Please see my tax news blog here

I wondered whether to post this or not. I don't want you all reading it somewhere else and then worrying about it but then I don't want you worrying about it by reading it here 

 I don't think it is anything to worry about as it's a whole lot of posturing by the Conservatives. They do want to reduce inheritance tax as it would be a vote puller but this would be a crazy way to do it as they would have no accurate measure of the tax gained by charging the levy (as Keith Johnston says in the report).

I'll keep an eye on developments.

I certainly find the spin interesting if disengenuous since it is not going to be legal under EU law and creates issues for excluded property trusts, legal issues on divorce and a whole host of other things.

Much more worrying to most of us right now are the tax increases coming under the Clinton/Obama regime since both would increase tax significantly.  Most readers of this website with investments should be thinking and taking advice now on minimising the tax impact of a Democratic administration...

I agree w/Guya; Democrats are likely to win the US.  For the UK, whether Conservatives or Labour are in power, any levy or other tax on nondoms will likely be changed a couple dozen times before a final version is passed into law.  As a result, you can't plan on any specific event, just general ones:  (a) US capital gains tax is likley to increase, (b) US and UK inheritance tax are both likely to change to higher exclusions than available in the current year, and (c) nondoms will someday have to pay more tax than they do today.

P.S.

Arcadian,

Let's hook up some time.  If you're in London ever, we can meet up for coffee.  Otherwise, just a telcon to get to know each other might be nice.

That would be great, Liz. I'm in London once or twice a month 

What's surprising about that report is that it comes from a really respected institution who must see a vote catching press release when they see one.

I hate inheritance taxes, especially when it affects handing down the family home. There should be an exemption for that. Australia got rid of them a while back. Aren't they being phased out in the US? (Excuse my ignorance!)

I look forward to meeting you next time you're in town.  We can chat about the insanity that is US inheritance tax then.

The non-domicile issue is going to be discussed in the pre-budget report.

Here's what's most likely to happen:  At some point, the definition of non-dom's going to change.  Currently it is near-perpetuity for income tax purposes and 17 years for inheritance tax purposes.  They'll change it so that both income and inheritance tax are the same, and they'll shorten the time frame to something like five years.  This will be done gradually, so that people won't up sticks and move en masse. 

The conservative plan is highly flawed.  Firstly, it means folks like us (low to above average income levels) will end up paying UK tax on our minor bits of squirrelled away offshore income, increasing the UK coffers by some tiny fractional amount.  Secondly, the really, really, really rich folks will be happy to cough up £25,000 to continue to shelter £100'000's of currently tax-free from tax.  So they'll be "seen" to be collecting more tax from everybody, where actually the rich are still exempt. 

The problem is that what is fair (taxing everybody on worldwide income) isn't necessarily what brings in the most money to the government.  If you tax the ultra-rich, they leave for another country (Monaco!) with a better tax regime.  The government then *loses* all the tax the superrich *are* paying:  VAT and the tax on the income that isn't exempt.  The average superrich person is paying well over £100,000 in tax annually.  The amount of tax they collect now from the superrich is a lot more than 0% (what they'd collect if they left).  So they have to juggle fairness with collectability.  Not a job I envy!

http://news.bbc.co.uk/1/hi/business/7036266.stm

Workers from abroad

People who come here from abroad, and regard the overseas country as their home, are known in legal jargon as "non-domiciled" or "non-doms".

Such people can currently avoid tax on assets held overseas.

When the Labour Party came to power in 1997 the new government argued that this was unfair and said it would make changes - but they have been silent on this issue for the past decade.

The government ridiculed the Tories' recent suggestion that such people should pay a £25,000 fixed rate in exchange for the right not to be taxed on other overseas income and gains.

But the small print of the PBR shows that from 2008, anyone who has lived here for seven out of the past 10 years will now have to pay £30,000 a year if they want to retain the benefit of the relief.

This means that an individual who was here as a student in 1998 for three years, went home to work from 2001 to 2004, and was then sent back to the UK by his employer, will fall within these rules from 2008. If he wants to stay within the old rules it will cost him £30,000 a year.

The section on non-residence and non-domiciles from the PBR is at

http://www.hmrc.gov.uk/pbr2007/pbrn18.pdf

Important points are:

After a non-domiciled individual has been resident in the UK for seven years they will only be able to use the remittance basis of taxation if they pay an additional tax charge of £30,000 a year. Where an individual then decides not to use the remittance basis (and not pay the additional tax charge) they will be taxed on all their worldwide income and gains whether or not they are remitted to the UK.


On or after 6 April 2008, subject to a de minimis limit, individuals who are resident but not UK domiciled or not ordinarily resident will not be able to use both the remittance basis and any of the personal income tax allowances. The change will apply to personal allowances, married couple’s allowance and the blind person’s allowance. A de minimis limit will apply such that remittance basis users who have unremitted foreign income of less than £1,000 a year will be able to retain their personal, married couple’s and blind person’s allowances as appropriate.

Consultation
There will be consultation on the detail of the changes, based round draft legislation that will be published towards the end of the year.
The Government will also be consulting on whether people who have been resident in the UK for longer than ten years should make a greater contribution.

okay... breaking this down for my situation.... (i realize only my accountants can give me specific advice...)

in sep 2010 i will be here for 7 years.  at that point, I will be taxed by the US on my worldwide income (although i have an $80,000 exclusion). 

In the UK I will have 2 options-
1- Can bring $ into the UK, but have to pay £30,000 /year fee?
2- Taxed on worldwide income (will I have an exclusion?)  I will be taxed by the UK even if I don't bring this $ to the UK £?

I feel like I'm getting this wrong- but as I have income in both countries, this will effect me.  May even tip the balance and make me move back to the US.

You have it pretty right.  I think it should say:

"In the UK I will have 2 options-
1- Can NOT bring $ into the UK, but have to pay £30,000 /year fee?
2- Taxed on worldwide income (will I have an NO exclusion?)  I will be taxed by the UK even if I don't bring this $ to the UK £?"

You would owe more tax then now if the US tax rate is lower then UK (eg 15% rate on long-term gains if this still exists in 2010) or you own tax exempt munis or make offshore income gains.

holy mother of god. 

i don't make 30,000lbs/year in the UK.  and i'm expected to pay the gvt this, yearly!?  what? 

i'm going to see my accountant next week to map out a long termish plan.

this is ridiciolous. 

thank you to this site.  i wouldn't have known this if it wasn't for the site.

I don't understand any of this...


I live here on the IOM..I have no ties to the US...I don't bring any money into the UK. Is this going to affect me?

Other than I am selling my house in the US hopefully soon.

Well, I'm no tax expert, but my understanding is ...

1) ...that the £30,000 a year fee to the UK government is ONLY if you still want to bring money into the UK on the remittance basis. That is, paying UK tax on it if and only if you bring into the UK. For those of us who don't even make £30,000 in a year, we'll be taxed on all worldwide income (the year that income arises) whether or not we bring it into the UK.

Yep, that includes that $10.46 in interest on your savings account back home.

2) ...that this really only impacts money brought into the UK. It doesn't effect money you earn here that is taxed here. I.e., if you work here in the UK full time and your only income is a £25,000/year salary, these changes would not impact you.

3) ...worst case, we'd pay the US tax, then have to pay any UK tax that's higher than the US tax. I.e., if we're in a 15% bracket in the US but a 22% bracket in the UK, we'd pay 15% to the US and 7% to the UK.