On 16 February, I commented on the Government’s proposals to encourage non-doms to invest in the UK by relaxing the remittance rules which would otherwise impose a hefty tax charge on offshore money brought into the UK. View my earlier article.
The proposals were originally published in the draft Finance Bill in December 2011 and I, as a member of the Law Society’s Tax Law Committee, along with many other professional bodies had meetings with HMRC and made formal representations as to what needed to be done to make the new rules workable and attractive to prospective investors. The advance publication of the Finance Bill in draft is part of HMRC’s new, more consultative, approach to tax policy, intended to allow those who will have to operate the rules to provide some practical input into their design.
So has HMRC been listening? Yes, up to a point. Unfortunately, only up to a point. It is encouraging that HMRC has listened to at least some of the comments made by the professional bodies but, in this particular case, there is still a long way to go.
HMRC have taken on board a number of technical comments which are now reflected in the Finance Bill. This clarifies when the relief will be available, when a potential charge may apply and how the remittance basis rules will operate in relation to the money invested. Other helpful changes deal with a number of practical problems.
BUT a number of major concerns remain including:
- the “potentially chargeable events” which can trigger a tax charge remain broad and uncertain;
- where a potentially chargeable event occurs, the individual has 90 days from becoming aware of it to realise the investment and then a further 45 days to take the proceeds offshore. The big problem is that the investment is, by definition, an interest in an unquoted company. The investor is extremely unlikely to be able to realise his investment within the permitted period especially where he has a minority interest. Pre-emption provisions (which will almost certainly apply), can take months to unwind and even then, there is no guarantee that anyone will want to buy the investment. This leaves the investor with a potential tax charge which could be triggered by circumstances completely beyond his control. The revised proposals do not address this;
- where individuals, trusts or companies which are connected with the investor also make investments in the same target, a disposal of their holding by one of these “relevant persons” can trigger a potential tax charge on the investor himself. This goes further than the existing remittance basis legislation. Although there are various existing provisions which trigger a tax charge on an individual where someone else deals with that individual’s income or gains, these new, proposed, provisions can trigger a tax charge on an investor where someone else deals with an investment made with his own money!
The fundamental question remains: why would a non-dom invest in the UK when he can invest offshore without all these risks and the attendant costs?
We can only hope that further dialogue with HMRC will turn these proposals into a workable and attractive option for non-doms, many of whom are willing, indeed keen, to invest in the UK, but are inhibited by the current unfavourable tax treatment and the uncertainly and potential for significant tax liabilities inherent in the Finance Bill proposals.