The Government’s watering down of its proposals for the taxation of non-UK domiciled people has been well documented. Even after being made less aggressive, the new proposals do pose significant tax planning considerations for those affected by them. One particular problem that affects UK residents of US domicile is whether the American Internal Revenue Service (IRS) will accept that the £30,000 levy, which ‘non-doms.’ can opt to pay in order to avoid being taxed in the UK on their unremitted world income, would qualify for double taxation relief under the UK/US double taxation treaty. Guidance on the Budget, prepared by HM Revenue and Customs (HMRC), contains a lengthy opinion by a US law firm that the levy will be accepted for this purpose, but the IRS has issued no such assurance.

 

However, all this publicity about the taxation of ‘non-doms.’ has left two other significant areas in which HMRC have ‘upped the ante’ being given scant publicity.

 

The first of these are the new rules over determination of whether a person is or is not UK resident. From 6 April 2008, any day in which a person has been physically present in the UK will count as a day in the UK. Previously, the days of entry to and exit from the UK were ignored. This is possibly less important for those who would be caught under the ‘183 days in a year’ rule, which makes any person spending more than half of the tax year in the UK resident for Income Tax and Capital Gains Tax purposes. However, the new rules also apply to the ‘91 day’ rule, which is much less well known. This rule makes any person who spends an average of 91 days or more per year in the UK, over a period of four tax years, resident in the UK for tax purposes from the beginning of the 5^th year.

 

Secondly, HMRC now have an enhanced ability to swap information and enforcement powers with foreign tax authorities, which will allow them to collect taxes due here from residents of several foreign countries. This follows HMRC asking over 100 foreign banks with branches in the UK to provide information regarding foreign accounts held by UK citizens.

 

The message is that HMRC are pulling out all the stops to find people who have undeclared income hidden in foreign accounts.