Nexia European Tax Conference Monaco – 8 February 2008

New Tax Rules on UK Residence and Non-Domicile 1.Overview 2.Rules for determining UK tax residence Current rules Proposed changes 3.Non-Domicile Current rules Proposed changes 4.Impact High net worth individuals International secondments

Overview UK tax liability determined by: -residence status -ordinarily resident status -domicile status Substantial tax breaks available if: -not ordinarily resident -not UK domiciled Review process started in the 1990s Proposed changes to be effective from 6 April 2008

UK Tax Residence: Current Rules Resident 183 days in a UK tax year. Come to UK for a purpose which means here for at least 2 years. Come to UK with intention of living here for at least 3 years. Visit UK regularly such that after 4 years their visits average more than 90 days in a tax year.

UK Tax Residence: Current Rules Ordinarily Resident In tend to live in UK for at least 3 years Intend visiting UK regularly for at least 4 years and visits average more than 90 days a tax year Previously ordinarily resident and return to UK after a period abroad for a specific purpose

UK Tax Residence: Proposed Changes Rules will remain the same BUT Basis of counting days will change: Current Only whole days in the UK count e.g. 5 days working in UK could count as only 3 days Proposed Whole days and part days in the UK will count e.g. 5 days working in the UK would count as 5 days

Non-Domicile: Current Rules If non-domiciled in UK then offshore income and gains taxed on a remittance basis Does not matter how long the individual is in UK Qualify for personal allowances

Non-Domiciles: Proposed Changes In UK less than 7 out of 9 preceding years In UK 7 out of 9 preceding years Will have choice each year to either: If taxed on remittance basis will cease to have personal allowance Pay an additional flat rate tax charge of £30,000 p.a. to retain remittance basis No personal allowance Cease to have access to the remittance basis and pay tax on an arising basis on worldwide income and gains If less than £1,000 offshore then remittance can still apply

Impact of Changes : High Net Worth Individuals Many planning opportunities closed down!

NOW FUTURE Non-Dom Individual Regarded as individuals income or gains and subject to UK tax as UK asset UK Property Off Shore Company Off Shore Trust Non-Dom Individual

Impact of Changes: International Secondments 1.Commuters Proposed change to counting days for residence –More Commuters will become UK tax resident –Knock on impact in determining if UK workdays exempt under Double Tax Treaties –More consideration needed as likely to be tax resident in 2 countries 2.Long Term Secondments Proposed changes for non-domiciled individuals –Immediate impact for employees who have been resident in UK 7 out of preceding 9 years –Could influence when secondees will want to leave UK –Could influence decision on ‘repeat’ secondments –Loss of personal allowance unless taxed on worldwide income

Impact of Changes 3 consecutive years of non-residence will break the 7 out of 9 year test £30,000 charge may not qualify for double tax relief in certain countries Remittance of £30,000 to pay charge will give rise to tax charge on the remittance An election can be made each year to a)Pay £30,000, or b)Pay tax on world wide income and gain Review off shore trusts Consider remitting gains to UK prior to 6 April Action to take before 6 April 2008

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