Congratulations to Asian Voice

Editor: Asian Voice

From: Nagin Khajuria

I want to congratulate the Asian Voice editorial team on the amazing variety of topics covered every week for a £30 yearly subscription. It must be the best value for money of any weekly newspaper in the UK by far.

The two articles (p20-21 & p24-25, Careers in Accountancy July 2008, AV 2 Aug) on non-domiciled persons in the UK and tax guidelines on how to cope with the new annual flat rate of £30,000 tax levy to continue having the privilege in living in the UK without declaring their worldwide income makes useful reading.

By sheer coincidence, the above Asian Voice articles published on 2 August were preceded by Accountancy Age weekly magazine leader article “Hartnett gunning for tax haven advisers” on 31 July. The outgoing chairman of H M Revenue & Customs warned there that HMRC would launch criminal prosecutions against accountants who have slashed clients’ money in offshore tax havens to duck paying UK taxes. 

These new rules after 90 years of tax holiday may have indirectly influenced both doms and non-doms, to re-consider their rights and responsibilities in the overseas countries and/or their use of tax havens. It may be fairer to pay their due taxes in the foreign land that is bestowing upon them that income and/or capital gains.

After all, if they pay their taxes overseas, then the foreign tax would be available globally as a credit or offset against UK tax liabilities. Even a U K tax refund is feasible under these circumstances.

£30,000 flat rate grossed up at 40% works out at £75,000 income or capital gain. Up until now, the non-dom has not paid any tax in the foreign country. Suppose the tax is 20% on this £75,000 overseas. The taxpayer pays this £15,000 overseas. 

As a dom, his gross income in UK is, let us say, also £75,000; he adds another £75,000 as his foreign income. He claims £5,000 personal tax allowance, pays 20% on the first £40,000, and 40% on the next £105,000. Total tax payable in the UK is £8,000 plus £42000 that is £50,000, less foreign tax credit of £15,000; he pays £35,000 in the UK and £15,000 overseas.

As a non-dom, the same individual would not declare his income overseas, and pays on UK income of only £75,000. This works out at £5,000 tax free, 20% on the next £40,000 and 40% on £30,000. He pays a total of £20,000 plus a non-dom flat rate tax of £30,000. He ends up again paying £50,000, but with the additional possibility of tax, penalties and interest overseas when he gets found out overseas.

In any case, now is the time to urgently open four separate bank accounts overseas and four separate bank accounts in the UK: 1. Accumulated trading Income overseas up to 5 April 2008; 2. Accumulated capital gains overseas up to 5 April 2008; Accumulated Interest Income overseas up to 5 April 2008; 4. accumulated other savings etc. overseas that cannot be clearly classified for the time being. Same corresponding accounts should be opened in the UK. Movements in subsequent years should strictly follow the above four mirror bank accounts in the UK in future tax years.

Consideration should be given to equalisation of all income, savings and capital overseas among all family members up to 5 April 2008 and a decision taken that the entire family members no longer wishes to consider themselves non-doms. Their next tax returns would confirm that they no longer wish to be in the non-dom category. As income and capital gains are spread over several persons, and as full advantage is taken of personal allowances as well as annul capital gains tax exemption for each family member, the family as a whole may end up paying far less tax than ever before even if they declare all their worldwide income and assets.

Finally, there is a distinction between adults who are under 18 and those over 18. Those under 18 lose personal allowance and capital gains tax exemption but do not have to pay the £30,000 flat rate if a decision is taken to pay the £30,000 for those who are over 18.

Each tax payer or each nuclear or extended family circumstance is unique but the above are at least some useful tax planning guidelines.

Nagin Khajuria, FCCA
Director, Simplification Made Simple Limited
Chartered Certified Accountants & Statutory Auditors
Co. Reg. No. 03446745
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