The tax system for international investors and non-domiciled residents in the UK can be complicated. Experts are calling for a reform to kick-start the economy.
HMRC should reassess how it treats investors from overseas to encourage more inward investment. This is the advice of Robert Pullen, a partner at tax and advisory firm Blick Rothenburg.
As the fight to control coronavirus in the UK continues, the country’s economy has taken a hit. The situation is much the same across the world. To tackle some of the issues, Chancellor Rishi Sunak is offering financial and fiscal benefits and packages to many affected people and businesses.
However, plans are in full swing on how to get the economy moving as soon as the crisis ebbs. Robert Pullen believes the answer lies in strengthening our appeal to foreign investors, which can be achieved through tax changes.
Bring back special tax regime
One key area to look at is the remittance basis, he says. This is a tax option for some UK residents living outside the UK.
“In order to kick-start the economy, HMRC could loosen the restrictions in this area,” he says. “For many years, non-doms have had a tax exemption on their overseas income and gains, provided the money is not brought into the UK. However, this has had a knock-on effect of dampening spending in the UK, as non-doms are deterred by suffering UK on any amounts brought into the country.
“For a limited time only, from April 2017 to April 2019, the UK government introduced an opportunity for funds frozen outside of the UK to be restructured and brought to the UK. Whilst complicated, this unlocked a significant amount of capital, which in turn would have begun circulating in the economy, generating profits and tax revenue, such as VAT on purchases.”
He believes we could see a major boost if the government reintroduced this special regime. It could also bring in more simplified rules, allowing people to “remit monies to the UK and pay a flat tax rate, of say 10%”.
Simplify double tax relief
Adam Smith, a partner in Blick Rothenberg’s UK/US tax team, also believes some tax relief is too complex.
He says: “Simplifying the way double tax relief works in the UK could prove to be a very popular way of encouraging inward investment – even if that results in a small ‘top-up’ payment being required to HMRC.
“Whilst there are some reliefs already available for non-doms to bring money into the UK, notably Business Investment Relief, it is generally accepted that the relief and the associated qualifying criteria are far too complicated.”
Stamp duty for foreign buyers
One major investment area for overseas investors is the property market. Property in UK cities in particular attract scores of foreign investors every year, providing a major boost to the UK economy. Areas like Manchester, Birmingham and Liverpool are now especially popular locations among such buyers.
In the latest Budget statement, Rishi Sunak said he would introduce a tax levy to foreign buyers. A 2% surcharge to the existing stamp duty charge will come into play from April 2021. While many believe the benefits of investing in UK property will override the cost, others are against the move. Particularly now, such inward investment is vital to the economy.
Upon the stamp duty hike announcement, BuyAssociation’s managing director Sam Hadfield said:
“If all three political parties are supporting this policy in some form, we have to pay attention to it. It will be interesting to see what effect it has in reality if it comes to pass.
“From our point of view, the UK housing market needs investment. Development has to keep up with demand, and we need the government to provide options to stimulate the housing market. Importantly, we need to encourage the development of the right type of stock.”
“It will be interesting to see what shape any efforts to encourage investment and building take. Building more houses ought to be the priority. Stamp duty reform across the board, not just for first-time buyers, could also provide a real incentive for people to keep buying and selling and stimulate the market further with more movement within the existing stock which in turn helps those trying to own their first home.”
