Joining up the dots to maximise tax relief

The UK’s taxation of non-domiciled individuals is both famous (some would say notorious) as well as being much misunderstood.  At its simplest, those who come from abroad to the UK can realise non-UK income and gains tax free in the UK, as long as it is not used or ‘remitted’ to the UK – the so called ‘remittance’ basis.

These rules have been tightened over the last 12 years, so remittances are better defined, there is a greater cost for claiming the remittance basis, and the benefits are time limited.

However, there is no doubt that in the right circumstances the remittance basis is still very beneficial to the individual concerned.

Broadly, any use of funds in the UK is now considered a remittance.  This includes use by a company under the control of 5 or fewer people, (a ‘close’ company), even for business purposes in the UK.  This, in macro-economic terms led to the worst of all worlds – no tax collected in the UK, and no money invested in the UK from foreign gains made by non-doms.

To correct this, we now have ‘Business Investment Relief’.  Cash used in the UK to fund limited companies will not be treated as a remittance (conditions apply).

If these investments are made into EIS or SEIS qualifying companies, relief is also available under these rules.  Therefore, a non-dom can bring cash, tax free to the UK, invest in qualifying companies, claim EIS or SEIS relief and use this relief to cover tax liability on UK income.  If the conditions work to their maximum, a taxpayer can get £1.6m of tax paid money from a UK company each year.