Darling’s “climb-down

Following an announcement from the treasury yesterday, the media have today hailed a supposed  "climb-down" by the chancellor Alistair Darling on the reform of non-dom taxation.

The actual terms of this "climb-down" are set out in a letter by David Hartnett, the acting chairman of HMRC.

The wording is vague and only offers the following minor concessions.

• The supposed retrospective effect of the changes to offshore trusts is not going to happen. (This was hyped by some professionals and was clearly unintended!)
• Non-doms can still have confidentiality of offshore income and gains, but only on those assets held personally. So, trust and company holdings and interests will still be subject to extensive new reporting and will be largely excluded from the remittance basis of taxation and taxable as they arise. So, that is not going to influence anyone to stay!
• Those paying the £30,000 annual charge can remit money tax-free to pay it!  A concession, but only to the super rich for whom £30,000 is small change!
• Artworks for public display only can be brought to the UK, without any tax consequences! Not much use compared to the current rules whereby a client can buy a work of art abroad with foreign income and hang it in his UK home, with no tax charge!
• HMRC will try and get the US tax authorities to allow the £30,000 annual charge against US tax?

Sadly, the above will not prevent any non-doms from leaving the UK; and if there is no clear clarification of the rules within the next 2 weeks; all clients will have to go ahead with restructuring and most will prepare to leave!

The reasons why people will leave are that most hold their assets in offshore trusts which will now be subject to UK income tax and UK capital gains tax (mainly) in the tax year the gains or income arises, even if they pay the £30,000 annual charge!

Offshore trusts are used to avoid UK inheritance tax and the new rules do not affect this!

[There is a rumour that the treasury have indicated that they are prepared to backdown on subjecting assets in offshore trusts to UK capital gains tax. In other words, to preserve the exemption from capital gains tax that assets held in offshore trusts currently benefit from!]

My general view is that it is worth waiting a week or so, to see if this rumoured concession emerges.

If it does, then many non-doms can stay and may not need to undertake substantial re-structuring of their offshore trusts and other assets.

If it does not: then there will approximately 4 weeks to re-structure and for most to take up residence elsewhere.

Although Switzerland is often mentioned;

Ireland,

Belgium,

Holland

and Spain are all options.

Cyprus,

Malta,

and Portugal are also worth considering.

Monaco can also be used in the right circumstances (but with caution, due to the new rules on residence to which no "climb-down" has been mentioned!)