Concessions help UK regain role as tax haven
By Vanessa Houlder in London and Haig Simonian in Zurich Financial Times Published: April 15 2008 16:21
Britain is once again eligible to market itself as a tax haven following recent concessions to "non-dom" residents, according to a firm of advisers.
Grant Thornton said it was dusting down proposals to attract Indian entrepreneurs to Britain which were shelved last October when Alistair Darling, chancellor of the exchequer, first announced higher taxes for foreign residents. The new tax regime was watered down last month, in a move that has partially restored the UK's appeal to wealthy foreigners.
Anuj Chande, head of Grant Thornton¹s South Asia Group, said the firm was hoping to relaunch the initiative "to market the UK as a tax haven" for Indians wanting a European base.
"We are now going back to the drawing board after seeing the concessions."
Under the new rules, many foreign professionals would see a sharp tax increase after living in Britain for more than seven years since they would start paying tax on their offshore income, unless they pay a GBP30,000 charge. But the government made concessions for the poorest and the richest of those affected, including modifications to the taxation of trusts, allaying what the Treasury said was a "risk that people may disinvest in the UK".
The changes were greeted with relief by many non-domiciled residents, so-called non-doms, and advisers who had warned the Treasury that its calculation that 3000 people would leave the UK was an underestimate.
Advisers say the recent amendments have reduced the number of non-doms planning to leave the UK. Jacob Rigg of the Society of Trust and Estate Practitioners, which represents advisers, said: ³There are definitely some people leaving but much more limited numbers than there would have been.²
Richard Mannion of Smith & Williamson, an advisory firm, said that among those considering leaving Britain were US citizens. Some are vulnerable to double taxation because of mismatches in the UK and US tax systems, even though they should be able to offset the GBP30,000 charge against US tax. "Americans are worried that even though the GBP30,000 has become creditable [against their US tax bill], it doesn't solve the problem."
David Butler of Kinetic Partners, a tax advisory firm for hedge funds, said the non-dom changes had prompted dozens of managers to move part of their operations, mostly to Switzerland.
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Ireland popular
Irish tax experts report considerable interest from UK-based private banks acting for rich clients who want to relocate to Ireland to escape Gordon Brown's clampdown on non-doms, writes John Murray Brown.
Philip Ryan of Ernst & Young in Dublin says there have been a number of inquiries from UK-based clients. He points out that Ireland¹s attractions for non-doms have increased following the Irish government's December budget that changed the way investment income earned in the UK -- for example, dividends or rental income -- is treated. Until now, UK investment income earned by Irish non-doms was taxed as normal. It will now be taxed only if remitted.
Last year, the European Commission asked Ireland to amend the rules on the grounds that they were discriminatory, and prevented the free movement of capital.
Mr Ryan expects the Commission may take similar action as regards the current dual capital gains tax regime in Ireland, where currently Irish residents are taxed on worldwide gains, while non-doms are taxed only on Irish and UK gains.
Non-doms in Ireland pay income tax on the basis of the number of work days spent in Ireland. Another attraction for those considering relocating is that accumulated capital can be brought into Ireland -- perhaps to buy a house -- without tax having to be paid on it.