 Non-dom funding for UK businesses
In addition to the statutory residence consultation document (see page three), a further consultation, Reform of the taxation of non-domiciled individuals, has also been published. It is less ambitious in scope but does propose a number of useful simplifications to the current remittance basis rules. The most important proposal is to introduce an exemption for remitting to invest in UK companies. Currently, any non-UK domiciliaries seeking to invest in the UK often face an up-front tax charge. Bringing funds into the UK can easily create a remittance of past non-UK income or gains, triggering a tax charge for the year in which the funds are transferred. This can make such investment in the UK less attractive.
The Government intends to introduce a new rule that allows non-UK domiciliaries who are taxed on the remittance basis to bring funds onshore to invest in UK businesses without triggering a tax charge on deemed remittance of income or gains. To prevent tax avoidance, it is proposed that, on exit from any such UK investments, the proceeds must be either reinvested in another UK business or sent back overseas within two weeks of realisation.
The new relief must be claimed via the investors’ tax returns. In order to qualify, the following conditions must be met for each remittance:
· The investment must be into companies only, in the form of shares or loans. The company need not be UK resident but if non-UK resident it must have a permanent establishment in the UK.
· The company must be a trading company.
· Companies involved in development or letting of commercial property will qualify but those developing or letting most forms of residential property and leasing businesses are excluded.
· On any partial realisations, any proceeds are deemed first to be returns of income and gains remitted at the time the investment was made.
The proposals give investors significant flexibility as:
· there will be no minimum or maximum investment limit or holding periods
· the investment may be made direct by an individual or by offshore companies or trusts
· there will be no need to identify the source of funds invested at the time the investment is made
· the investor or the investor’s family may be connected with the business, although there will be some antiavoidance provisions to prevent any direct personal benefit from a remittance.
The new relief is expected to be targeted at investment in unquoted companies but may be extended to quoted companies in due course. When introduced, this proposal may open up new sources of finance for family companies and SMEs.
|