The to-and-fro of the UK government’s approach to the resident non-domilicled (RND) market is again running around like a big scary bear, starved from a winter’s hibernation, chasing the honey. That is exactly what the UK government is doing again now with its latest Budget moves towards foreign wealth and residents in the UK – chasing the tastiest honey pot. It is the taxman’s very own effort at client segmentation.
The issue of RND status and the contribution of the wealthy foreign residents have been bounced back and forth in the press and government since the financial crisis as a politically easy target to help refurbish the exposed tax coffers. And, of course, this group, whoever they are, were overtly avoiding paying their fair share of tax (as the argument goes) and therefore due some comeuppance. The last government, somewhat stuffed after bailing out the banks, struck first, introducing the annual £30,000 (E35,000) RND tax levy on individuals resident in the UK for seven years if they wish to retain no taxes on overseas remittances to the UK.
Better still, according to the advisory community, the government has added untold complexity to the rules to scare off anyone thinking of tinkering with or not taking the system seriously. The result, of course, was ongoing commentary about the flow of RNDs from the shores back home or to more attractive jurisdictions. Indeed, last month the number of RNDs was reported to have fallen back from 139,000 to 123,000. In fact, last year only 5,600 paid the levy for assumed revenue of £168m.
Somewhat surprisingly, the new government, despite being conservative (though perhaps this is the Liberal Democrats weight), has now upped the ante. Chancellor George Osborne added a new layer of fiscal hostility with a new levy of £50,000 for those RNDs who have been resident in the UK for more than 12 years. For those here between seven and 12 years the £30,000 sum remains.
However, the current government has recognised that just making the jurisdiction wholly less attractive to the foreign wealthy is not entirely in line with their growth aspirations. As such the Budget also included the scrapping of tax charges related to RNDs remitting money into the UK for the “purpose of commercial investment in the UK”. Indeed, this sees the UK following the lines around investment and commitment followed by peers such as Australia and the US.
Thus, individuals willing to invest money in the UK will not be unduly penalised as long as they reveal a commitment to the jurisdiction. For the first time the government therefore has put in place a clear expectation and thus benefit from pursuing a RND strategy.
A month or so ago, the Home Office made recommendations around changes to “investor visas”. This is likely a key plank of the investor approach to RND categorisation and, in our view, the government’s own approach to segmentation. The UK realises it must re-engage positively with the rich and not just the affluent or average high net worth individual (HNW). RND status, therefore, is now seriously segmented and slanted to the high-end wealth or ultra HNW rather than the average wealthy.
The UK government obviously realised that it had to extract a specific value in its new approach to attracting the foreign wealthy. Looking worldwide, this approach is familiar in benchmarking the successful approaches to residency for foreigners. The most successful approaches make clear the expectations and demands from the outset.
Stephen Wall is a director at wealth management strategy think-tank Scorpio Partnership
Check-up
• The last Labout government introduced an annual £30,000 levy on RND individuals resident in the UK for seven years.
• The new Coalition government has announced an annual £50,000 charge, rfor those resident for more than 12 years.
