UK Tax Increases Finalized for 2008
Mr. Darling, UK Chancellor of the Exchequer, has announced that the widely criticized new taxes for Non Doms (foreigners) living in the UK, would become effective in April 2008.
Many had hoped that the UK would consider more carefully the serious implications that such new taxes might present for the UK economy. Various groups and organizations had predicted a flight of companies and high net worth individuals to other countries, particular Switzerland.
John Riches, Deputy Chairman of STEP, stated that, “In the absence of such a postponement (of the tax proposal), we are still fearful that the flight of individuals and capital will continue”.
The principal tax matter is the imposition of a charge of GBP 30,000 per year for Non-Doms using the remittance system of taxes, who have been resident in the UK for 7 of the past 10 years.
The new provisions going into effect in April, 2008 confirm the above tax measure but suggest that the GBP charge should be deductible from foreign tax owed. The previous position of Revenue was that this was a matter for the various tax treaties and not of concern to Revenue. It remains to be seen however, as to whether this position has really changed.
The other concern is whether, now that the old Non-Dom regime has finally been breached, more tax changes may be in the offering for the next and following years. Fears abound; already, there are reports of major re-locations of Hedge Funds from London to Switzerland and more are following. These funds employ large numbers of foreign specialists who would be impacted seriously by the tax increases, and who knows whether these are the last.
According to the Financial Times, David Butler, a founding member of Kinetic, an investment management company, stated that up to two-thirds of his Hedge Fund clients have already moved their operations to Switzerland. And of course, readers may be aware of the recent Yahoo announcement that it intends to move its European operations from London to Switzerland.
While the investment community in London is reeling from the changes, it is still uncertain what impact this will have on the high net worth foreign community in London. Some may consider the GBP 30,000 charge of little significance but others less wealthy may begin to re-consider residency in London. After all, there are may other attractive locations in the world, particularly for the high net worth retiree. Of course, for the Middle Eastern wealthy, Dubai and other countries are spending very large sums of money on infrastructure, such as hotels and recreational/entertainment complexes, to attract just such wealthy Middle Eastern UK residents, as well as high end European and US nationals.
At the moment Switzerland is the country of choice for Non-Doms re-locating from London. It has a very attractive tax regime and the canton system makes it possible to negotiate a flat annual tax, providing stability in tax planning.
Offshore Trusts
In this area, Revenue has made some concessions. Income and gains by offshore trusts with assets in the UK will only be taxed if they are remitted to the UK.
Capital Gains
The new 18% flat tax on capital gains will come into effect in April 2008.
Offshore Income
Mr. Darling confirmed that the Government would “not seek to charge UK tax on offshore income or capital gains that is not brought into the UK.”
Source: Maritime International Ltd
