BEST OF 2014 SO FAR: Hostile Tax Legislation Is Driving Non-Doms Out Of The UK – Stephenson Harwood

(Editor’s note: As the summer holidays wind down, we thought readers might appreciate a chance to revisit some of the stronger, and more controversial, items that have been published on this news channel since the start of what has been an eventful year.)

Since the financial crisis, governments worldwide have made it a key priority to increase transparency and crack down on tax evasion as they seek to plug budget holes and appease growing public criticism. At the same time, however, they have also sought to lure wealthy foreign investors through special tax breaks and visa regimes.

There have been a raft of measures worldwide and the evolving regulatory environment represents what many commentators see as the single largest challenge facing the wealth management industry today.

The UK, for example, has also taken a tougher stance to some extent, with a number of policies designed to tackle tax evasion and forms of avoidance, including plans unveiled in April to make it easier to prosecute those that evade taxes by “hiding” their money offshore. It has also introduced what is called a general anti-abuse rule (GAAR).

Despite the widely held view that the UK has become a magnet for foreign high net worth individuals attracted by a favourable tax regime and flexible visa regulations, wealthy individuals from abroad are actually being driven away by what they view as increasingly hostile legislation, James Quarmby, partner and head of private wealth at international law firm Stephenson Harwood, told this publication in a recent interview.

“The UK government’s approach is slightly schizophrenic as on the one hand it is encouraging rich foreigners to come live here by issuing visas to high net worth investors, while on the other the tax law is bashing them on the head,” said Quarmby.

“There has been a trend for non-domiciliaries to leave because they feel unwelcome. I have expatriated quite a few clients. It is mostly Asia and Middle Eastern people that have left, as well as some Russians,” he added.

The remittance basis charge

Introduced in April 2008 by the former Labour-led government, the remittance basis charge is the annual levy paid by long-term UK resident non-doms to protect their non-UK income and gains from UK tax, provided the money is not remitted to the UK.

The charge starts at £30,000 ($50,550) for those that have been based in the UK for seven years, increasing to £50,000 for longer-term UK tax residents that have been resident in the UK in at least 12 of the previous 14 UK tax years.

Quarmby believes the introduction of remittance basis charge has been one of the main factors contributing to non-doms leaving the UK and he also criticised the government for the way it had hounded foreign nationals over their tax affairs.

“The Revenue mishandled the message at the time the remittance basis charge was introduced. The head of HM Revenue and Customs said in 2008 that if people paid the £30,000 charge then they would be left alone. However, these words ring hollow as it is clear that HMRC has been been systematically investigating people who are paying the remittance charge,” said Quarmby.

“There have been quite a few Code of Practice 9 investigations, which are generally reserved for the most serious type of tax fraud, launched against ordinary remittance basis taxpayers. One of my clients that was investigated was so horrified at how he was being treated that he just left the country. Incidentally, HMRC subsequently admitted that they had no case against him. I do not think that this type of behaviour has been good for our economy as foreign businesses will want to leave and as a result UK jobs will be lost,” he added.