23 Mar 2011
Budget reaction: Anthony Thompson
Following the Chancellor's Budget announcement today, Lawrence Graham's head of Tax and Private Capital, Anthony Thompson, commented:
On non-doms:
"There were two significant issues that particularly concerned non-doms prior to this Budget. The first was the fact that, once again, their tax status was uncertain with the coalition government stating last summer that they were going to review the taxation of non-doms and this so soon after the massive changes made in 2008. The second problem faced by non-doms is the ridiculously complex set of rules brought in by the 2008 legislation and which even the most technically gifted tax advisors find difficult to understand! This Budget looks to address both these issues, and to give them an incentive to invest in UK businesses but there will be a cost.
"The government have set out their stall in this Budget by stating the main aim of the changes and the fact that they are to be introduced in the Finance Bill 2012 after a period of consultation. They propose to simplify some of the rules on what is taxable when brought into the UK (which must be a good thing). They propose to incentivise non-doms to invest in the UK by allowing income and gains to be brought into the UK tax free if they are being used for commercial investment. Again, this will be welcomed by non-doms who may want to invest in businesses etc, but will this include investment in commercial real estate or will it be limited to trading companies and the like (which seems to be the case)?
"The bad news is that although, currently, non-doms after seven years of residence have to pay £30,000 per annum to get the benefit of their tax status, this figure will go up to £50,000 once they have been resident for twelve years. Again we anticipate this will apply from 2012. Will this increase put people off the UK and either drive them out or discourage them from coming in the first place? Presumably the government think not.
"In conclusion, the fact that we now know where this government wants to end up on this issue helps to remove some of the uncertainty so disliked by the non-dom community; the government has also said that there will be no substantive changes until the end of this parliament - but how long will that be? The fact that there will be a period of consultation and reform to the current rules and better opportunities to invest in the UK without a tax charge on what is brought in must also be a good thing not just for the non-doms but also for the economy as a whole as these are a group of people who help generate revenue for the UK."
On residence:
"It is proposed that after a period of consultation, there should be a statutory test of what makes a person UK resident or non-resident for tax purposes. The current situation is unclear and a statutory test is likely to give people the certainty that is not the case at present. Again, it is proposed that this will apply from April 2012."