Techcellence: Guilty by association: non-dom taxation under the spotlight again

Many years ago, a well-known political figure suggested that the difference between tax evasion and tax avoidance was ‘the thickness of a prison wall’.  Though, perhaps surprisingly, that remains the case today, certain courses of action used by individuals and companies which may have traditionally been seen as legally acceptable are facing challenges through the courts, sometimes without relevant law being changed.

It’s widely accepted by legal and accounting professionals that the ‘remittance basis of taxation’ that Akshata Sunak’s non-domicile status has reportedly allowed her to elect is a legitimate planning opportunity, longstanding in the UK tax system, and used by tens of thousands of individuals who meet the relevant criteria. It does however revolve around the common law concept of domicile, which from time to time needs to be determined by the courts given the absence of the letter of the law itself in this matter.

In essence, HMRC’s help sheet 264 confirms that ‘the remittance basis is an alternative tax treatment that’s available to individuals who are resident but not domiciled in the UK and have foreign income and gains’. This broadly means that overseas income and gains, subject to not coming into the UK or being benefited from, and available to be claimed until that individual has been tax resident for 15 of the previous 20 tax years, are not taxable in the UK. Contrast this to comparable foreign income and gains being chargeable in the UK for a resident-domicile, even if not brought into the UK or benefited from.

It is worth noting that in 2017, the Conservative Government reduced the period for which the basis is available, and that a fixed charge to claimants applies; £30,000 for non-domiciled individuals who have been resident in the UK for at least 7 of the previous 9 tax years immediately before the relevant tax year, rising to £60,000 for non-domiciled individuals who have been resident in the UK for at least 12 of the previous 14 tax years immediately before the relevant tax year.

Electing to pay this charge also means that the annual exemptions for income tax and capital gains tax are lost. In other words, electing for the remittance basis is likely to mean the taxpayer pays far more tax than the average resident domicile individual who has no choice, albeit potentially creating a substantial saving for those non-domiciles who elect. This hints at the historic rationale for such a system, which is that those from overseas can disproportionately add to the economy, and tax incentives encourage them to come.  Politics aside, as with every financial plan, the maths is always important before an election is made.

Additionally, as all good financial planners will know, early planning can also extend inheritance tax advantages for non-doms indefinitely through what is known as ‘excluded property’.

The remittance basis and other potential tax benefits afforded to resident non-doms may fail today in the ‘court of public opinion’, but their legal legitimacy, at least for now, is clear.

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