London calling? Not anymore. Tax tweaks worry NRIs, new migrants
London calling? Not anymore. Tax tweaks worry NRIs, new migrants
Kunal Shah - Associate Partner - Tax & Regulatory Services
The shadow of a new regime that will abolish a 200-year-old feature of the British tax system, hangs over many non-resident Indians (NRIs), recent migrants, and families who are planning to make the UK their new home. The new tax order, expected to take effect in April 2025, would increase their tax burden, require meticulous planning, and may even make the UK a less attractive country to migrate.
Over the past one month, tax experts and lawyers have been visiting London, exchanging notes with their City counterparts, to find ways to soften the blow. The trigger is the UK’s spring budget proposal to end the current tax treatment for UK resident non-domiciled (non-doms) individuals. Currently, Indian income and capital gains of NRIs are not taxed unless remitted to the UK.
This tax treatment can be availed for the first 15 years, after which an individual is deemed to be domiciled and the entire global income is taxed in the UK. But, under the proposed regime, new arrivals in the UK will not be subject to tax on their foreign income (irrespective of whether it is remitted to the UK) only during the first four years, starting with the year in which the individual becomes a resident. From the fifth year onwards, UK residents will be taxed on their worldwide income -- like earnings from rent, bank FDs, and stocks in India.
NRIs who had migrated say two years ago and are presumably non-doms, would be able to claim tax relief on foreign income for the remaining two years.
According to Dinesh Kanabar, CEO of Dhruva Advisors LLP, which offers a range of services in the tax and regulatory space to clients in India and abroad, “Present tax rates in the UK for the highest tax band is 40% for dividend income and 45% for other income. As against this, the tax rate for the highest band in India is 10% for dividend income under the India-UK tax treaty, 28% on rental income after considering standard deduction and 40% for other income. So, this will lead to additional tax leakage of 30% on dividend income, 17% on rental income and 5% on other income for NRIs under the new regime.”
Kanabar feels that Indian families planning to migrate to the UK may wait till the next UK election since the next government may shelve the plan or redesign it. But, existing families, he said, should evaluate the impact in terms of tax leakage on direct income, income from offshore trust, the proposed extension of the new regime to inheritance tax, etc. Families which are mobile, may explore other jurisdictions offering similar benefits while those planning to continue to stay in the UK should strive to avail the maximum benefit of concessions.
Wealthy NRI families who hold earnings and assets in offshore trusts may now have to consider changing the term of trusts, timing of distributions, and use other tools such as Family Investment Companies to align with the new rules, said Mitil Chokshi, senior partner at Chokshi & Chokshi. Chokshi, who has been advising some London-based NRIs, said most current nondoms, regardless of how long they have lived in the UK, are now waking up to a possible change.
as Spain, Portugal, Italy, Malta, Greece and Switzerland -- all of which have some form of nondomiciled taxation regime, said Kanabar. “Switzerland remains a popular destination precisely because it offers a lumpsum taxation regime. Dubai is another choice,” he said.
In a similar vein, Rajesh Shah, partner at the CA firm Jayantilal Thakkar & Company, said that the Indian diaspora in the UK may have to significantly realign their income-generating holdings. Uday Ved, tax partner at the consultancy KNAV, also said the new regime may necessitate restructuring of personal investments and income of NRIs and make the UK less attractive for migrants. However, the change is unfolding at a time when tax authorities worldwide are aiming to progress from complete nontaxation of income to avoiding double taxation of income, points out Kunal Shah, associate partner (tax and regulatory services) at the business and management consultancy firm BDO India.
Source:- Economic Times
Over the past one month, tax experts and lawyers have been visiting London, exchanging notes with their City counterparts, to find ways to soften the blow. The trigger is the UK’s spring budget proposal to end the current tax treatment for UK resident non-domiciled (non-doms) individuals. Currently, Indian income and capital gains of NRIs are not taxed unless remitted to the UK.
This tax treatment can be availed for the first 15 years, after which an individual is deemed to be domiciled and the entire global income is taxed in the UK. But, under the proposed regime, new arrivals in the UK will not be subject to tax on their foreign income (irrespective of whether it is remitted to the UK) only during the first four years, starting with the year in which the individual becomes a resident. From the fifth year onwards, UK residents will be taxed on their worldwide income -- like earnings from rent, bank FDs, and stocks in India.
NRIs who had migrated say two years ago and are presumably non-doms, would be able to claim tax relief on foreign income for the remaining two years.
According to Dinesh Kanabar, CEO of Dhruva Advisors LLP, which offers a range of services in the tax and regulatory space to clients in India and abroad, “Present tax rates in the UK for the highest tax band is 40% for dividend income and 45% for other income. As against this, the tax rate for the highest band in India is 10% for dividend income under the India-UK tax treaty, 28% on rental income after considering standard deduction and 40% for other income. So, this will lead to additional tax leakage of 30% on dividend income, 17% on rental income and 5% on other income for NRIs under the new regime.”
CAREFUL PLANNING
Under the proposed framework, NRIs who have migrated to the UK 10 years ago and are currently non-doms, will be taxed at 50% of their foreign income for the first year. Further, the remittances made in the UK towards pre-2025 foreign income will be taxed at 12% during the initial two years.Kanabar feels that Indian families planning to migrate to the UK may wait till the next UK election since the next government may shelve the plan or redesign it. But, existing families, he said, should evaluate the impact in terms of tax leakage on direct income, income from offshore trust, the proposed extension of the new regime to inheritance tax, etc. Families which are mobile, may explore other jurisdictions offering similar benefits while those planning to continue to stay in the UK should strive to avail the maximum benefit of concessions.
Wealthy NRI families who hold earnings and assets in offshore trusts may now have to consider changing the term of trusts, timing of distributions, and use other tools such as Family Investment Companies to align with the new rules, said Mitil Chokshi, senior partner at Chokshi & Chokshi. Chokshi, who has been advising some London-based NRIs, said most current nondoms, regardless of how long they have lived in the UK, are now waking up to a possible change.
WILL UK LOSE ITS CHARM?
Opinion is divided on whether the imminent shift towards taxing global income would rob the UK of some of its charm. The non-dom regime has been hugely popular with wealthy Indians because of the tax breaks. However, shrinking the period to four years may make the UK less attractive when compared to more generous regimes suchas Spain, Portugal, Italy, Malta, Greece and Switzerland -- all of which have some form of nondomiciled taxation regime, said Kanabar. “Switzerland remains a popular destination precisely because it offers a lumpsum taxation regime. Dubai is another choice,” he said.
In a similar vein, Rajesh Shah, partner at the CA firm Jayantilal Thakkar & Company, said that the Indian diaspora in the UK may have to significantly realign their income-generating holdings. Uday Ved, tax partner at the consultancy KNAV, also said the new regime may necessitate restructuring of personal investments and income of NRIs and make the UK less attractive for migrants. However, the change is unfolding at a time when tax authorities worldwide are aiming to progress from complete nontaxation of income to avoiding double taxation of income, points out Kunal Shah, associate partner (tax and regulatory services) at the business and management consultancy firm BDO India.
Source:- Economic Times