The Labour and Conservative parties in the United Kingdom are competing to get tough on the generous tax perks enjoyed by the country's non-domiciled residents. "Pay up, or pack up", say the Lib Dems.
A three party consensus in the UK now favours a crackdown on the benign tax regime for non-doms. Change appears likely, despite some broader unease about the potential impact on UK PLC. Some members of this attractive non-dom community may leave the country. Where should they go?
Canada has a vibrant economy, a cosmopolitan environment, top schools, good healthcare and world class leisure facilities. Half of Canada's population lives within 100 miles of the American border, so the country is ideal for families who want US proximity without the tax headaches.
Canada encourages wealthy and talented immigrants with tax policies allowing tax-free foreign income and gains (arising in trusts) for the first five years. The concessions were widely used by wealthy Asians in the 1990's and now appeal to UK non-doms.
The Canadian regime for taxing new residents:
- offshore income and gains arising in a foreign trust can be accrued tax-free for up to five years;
- income and gains arising in the foreign trust can be capitalised and later distributed without tax to Canadian beneficiaries;
- permission to immigrate is readily available to wealthy foreigners and their families, though the status takes a year or more to process;
- new residents meeting physical presence requirements may apply for citizenship (passport) after three years; and
- unlike the US, Canada has no estate or gift tax and it does not tax non-resident citizens.
What's the catch?
Income and gains earned outside the foreign trust or from Canadian sources is fully taxable for the new residents. Also, the generous Canadian tax concessions are limited to five years for self-settled immigrant trusts. (No time limit applies where the settlor does not take up Canadian residence or leaves Canada within five years.) However, as a Canadian passport confers more options for visa-free travel than virtually any other travel document in the world, it may be hard to keep those footloose non-doms in Canada in any event.