The Coalition Government promised to simplify the maze of complexity that had been created in the taxation of non-doms who pay UK tax on the remittance basis. The proposals in the recently-published Treasury Consultation Paper will soften some of the worst excesses of the technicalities, but do not provide the root and branch simplification of the compliance burden that was really needed.

A bolder hand has been taken, however, with the proposal put forward in the Consultation Paper to implement the Budget commitment to encourage inward investment into the UK by non-doms. Briefly, foreign income and gains brought to the UK to invest in a qualifying business will be exempt from the remittance rules, with no upper or lower limit, and this exemption will extend to offshore trusts and companies that are suitably connected with a non-dom individual. The relief will be effective from 6 April 2012 onwards.

A ‘qualifying business’ will need to be more than just a purchase of business assets. As the proposals stand it must be a company that is

  • UK resident, or has a permanent establishment in the UK, and
  • engaged in either trading on a commercial basis or developing and letting commercial property.

The intention is that the rules will be carefully circumscribed to prevent the investment being used to provide non-commercial benefits to the taxpayer and those connected with him or her, but this is nonetheless an interesting development.