A SIMPLE GUIDE TO THE £30,000 NON-DOM LEVY
This is a basic guide prepared by the Technical Advisory service for members and their clients. It is an introductiononly and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
Prior to the 2008 Budget, non-domiciliaries were not required to pay UK tax on income and gains generated from outside the UK provided that it was not remitted to the UK (remittance basis).
The 2008 Budget saw the introduction of the £30,000 non-domicile levy.
The basic premise of this levy is that it enables the non-domiciliary to retain the remittance basis of taxation beyond 5 April 2008 but at a cost. If the remittance basis is not opted for, the non-domiciled individual is taxed on their worldwide income and gains in the same way as a UK domiciled individual.
The remittance basis will apply automatically (with no levy), if:
- The individual’s unremitted income and gains are less than £2,000 in a tax year; or
- The individual has been resident in the UK for fewer than seven out of the last nine tax years.
From 6 April 2008, an individual who claims the remittance basis for a tax year will incur an additional tax charge of £30,000 for that year, if the following circumstances apply to them:
- They are 18 years old or over at any time during the tax year; and
- He has been UK resident for at least seven of the last nine tax years immediately preceding the tax year in question. (The preceding years may include years prior to 2008/09).
Finance Act 2012 changes
Legislation will be included in Finance Act 2012 to make the following changes to the remittance basis from 6 April 2012 onwards:
- A higher annual charge of £50,000 will be introduced for those individuals who claim the remittance basis for a tax year and have been UK resident in at least twelve of the last 14 tax years
- Non-domiciles will be able to remit their overseas income or capital gains to the UK tax-free where they do so for the purpose of making a ‘qualifying investment’. A ‘qualifying investment‘ is an investment in an unlisted company, or a company listed on an exchange regulated market, which carries on a trading activity on a commercial basis or undertakes the development or letting of commercial property. There will be anti-avoidance provisions to ensure the investment is made on proper commercial terms.
The decision whether to claim remittance basis and pay the non-domiciliary levy must be made by 31 January following the end of the tax year; i.e. 31 January 2013 for the tax year 2011/12. However, early consideration should be given to ensure the most beneficial treatment.
SCOPE OF THE LEVY
It must be noted:
- UK trusts that receive income or gains from outside the UK may be subject to this levy if the settler or beneficiary is based in the UK
- Spouses and civil partners are each liable to a separate levy
- Money brought in to pay the levy will not be subject to UK tax
- Works of art lent for public display are exempt from a charge to tax
- Assets already in the UK that were purchased with foreign investment income will not give rise to a remittance charge.
The levy will be collected through the self assessment system with the deadline for being the remittance basis being 31 January following the end of the tax year, i.e. tax return filing deadline.
Domicile of Origin
Normally where an individual is born, this would be the father’s domicile at the time of birth, where the parents are married; otherwise it defaults to the mother’s domicile.
Domicile of Choice
An individual may acquire a new domicile status by acquiring an new domicile of choice. To acquire a new domicile of choice requires positive action, such as settling in a different country and making a will under the laws of that country. HMRC may seek to establish that somebody who has settled in the UK has acquired a new domicile of choice.
Where an individual is tax resident in the UK for 17 out of the last 20 years, this is only relevant for inheritance tax purposes.