The residency consultation has been eagerly awaited by UK tax experts and their clients, many of whom have struggled with the current system of establishing UK residency and non-residency. It is largely based on legal cases decided by the courts over many decades, and is widely regarded as vague, antiquated and potentially subjective.
The other consultation involves a proposed reform of the UK’s non-dom tax structure, which increases the remittance basis charge for those non-doms who have been in the UK for at least 12 of the last 14 tax years to £50,000 annually, from £30,000, beginning from 6 April 2012.
It also proposes a remittance exemption for investment into "trading companies", which category would include investments in companies developing or letting commercial property, in order to encourage foreign individuals to invest in British enterprises.
The closing date for responses for both consultations is 9 September.
"The Government thinks it is right that non-domiciles who have been in the UK for more than a short period should pay an annual charge if they wish to retain access to the beneficial tax regime," the Treasury said in outlining the proposed changes to the non-dom regime, which had been flagged up in the most recent Budget.
"It also believes that those who have been here the longest, enjoying the benefits offered by the UK’s economy and society, should make a greater contribution than the current £30,000 charge to reflect their closer connection to the UK.
"By bringing the tax treatment of domiciled and non-domiciled individuals closer, the rules will be made fairer."
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George Bull of Baker Tilly in London said the proposed changes aimed at bringing in a statutory definition of tax residency for the first time represented "a good start to dealing with a difficult subject", although he highlighted some areas where problems could continue to exist, notably in the area of counting days spent in the UK.
He also noted that the main thrust of the proposals "is to provide certainty for inbound foreign expatriates" rather than to accommodate UK residents trying to shed their residency status, citing a Treasury comment that it intends to "continue to ensure that those with close connections to the UK pay their fair share, and that the rules do not give rise to unfair outcomes or opportunities for tax avoidance".
Said Bull: "The real point is that the current lack of clear rules produces unfairness. The present system, being inherently arbitrary and unfair, cannot result in all taxpayers paying their fair share."
Speaking on behalf of the Society of Trust & Estate Practioners, Wendy Walton, chairman of the organisation’s technical committee, noted that the broad principles behind the proposed statutory residence test "appear to be objective and will provide simplification and greater certainty over the current position”.
As for the proposed exemption on the taxation of remittances for non-doms who invest in commercial enterprises in the UK, she added, this "will encourage investment into the UK", while also being "widely drafted" in such a way as to permit investment into trading companies.
PKF: ‘likely to miss mark’
Tax experts at PKF, meanwhile, said the Treasury plan to devise a statutory definition of tax residence was "likely to miss the mark",
“The good news is that, in many cases, the proposals will bring much needed simplification and greater certainty," said Philip Fisher, head of employment tax and rewards at PKF.
"On the negative side, the government is planning to introduce a new concept of ‘connection factors’ – which combines presence in the UK with factors such as family and property location – that is ridiculously complicated, and will almost certainly test even the experts.
"Since the plan is to operate by requiring taxpayers to self assess, the government’s desire for certainty will be badly compromised far too often, and the courts could still be busy considering residence cases – which is precisely what the Treasury is trying to get away from.”
Fisher added that some of the measures to decide whether an individual has actually left the UK "seem unnecessarily harsh – for example, if someone was resident in the UK three years ago and spends 11 days here this year, they will usually be regarded as resident.”
A colleague of Fisher’s at PKF, London head of private client tax services Andrew Penman, was sceptical that the proposed changes to the way UK resident non-doms are taxed would achieve the desired effect. “Some proposals will give rise to genuine simplification, whilst others sadly fail to tackle the complications which can arise," he said.
"As a result, the plans are unlikely to achieve their objective of providing a substantial incentive for increased inward investment into the UK, although they contain a number of ideas that will undoubtedly make life easier for those non-doms that were already considering investing in the UK.
“The plan to exempt foreign currency bank accounts from capital gains tax is enormously welcome" though, he noted. "It will remove the enormous administrative burdens on many taxpayers who currently find themselves generating pages of calculations leading to very small taxable gains or losses.”
