DOMICILE REVIEW
Also recently published is the draft legislation to the remittance basis and the £30,000 charge on foreign domiciled individuals who are resident in the and wish to take advantage of the remittance basis. This is not a tax but an independent charge and will not be creditable against any tax due on foreign income or gains remitted to the .
This is partly just a matter of calculation (is the £30,000 more or less than the tax you would otherwise pay?) but it is also a matter of profile. There will be some people who will be reluctant to expose their worldwide income and gains to HMRC as they fear being targeted for special attention by reason of their wealth.
Others, perhaps being brought up in countries where the integrity and professionalism of the tax authorities is less fully developed, will be reluctant to reveal the extent of their assets to the tax authorities on grounds of security. Their anxiety will be increased by the requirement to provide HMRC with details of all offshore trusts (even existing trusts) within 12 months. They will pay the £30,000 simply to avoid putting themselves at risk.
Others view this as the harbinger of further oppressive legislation and are planning to go—and there seems to be a startling number of people for whom leaving the has become the preferred option.
Transparency
The changes to the remittance basis are profound and serious issues arise about the retrospective nature of some of the new rules. The change in the definition of remittance, the elimination of the source doctrine and the effect on remittances by third parties are bad enough, but what about income and gains arising in the current year which is remitted next year? The general idea for offshore companies and trusts is to eliminate the present exemption which applies to foreign domiciled settlors and shareholders to whom gains would otherwise have been attributed and to introduce a kind of transparency. If the offshore trust makes a gain on a foreign asset, it is subject to the remittance basis (rather like it would have been if the asset had been owned by the settlor personally) but if the asset is in the , there is no remittance basis—the gain is fully chargeable. No wonder HMRC needs full details of all existing trusts because otherwise it will have no means of identifying such chargeable gains.
Some of the proposals are so draconian that they will be simply impossible. Where the trust gains cannot be attributable to the settlor, the accumulated capital gains are taxed on the beneficiaries to the extent that they receive capital payments or benefits.
A foreign domiciled beneficiary will no longer be protected. So foreign trustees of a foreign resident trust with a foreign settlor and foreign assets make a distribution outside the to a foreign domiciled beneficiary. If that beneficiary is resident in the (and how do the trustees know that?) a charge arises and the trustees must provide a whole lot of information which does not exist because they have never had cause to keep it. This is so onerous that some people are confidently predicting a degree of relaxation—but I wouldn’t be too sure.
