Posted by Nick Day on 13 Feb 2014

Proposed Changes to the Taxation of Dual Contracts

Following the announcement in December’s Autumn Statement, the government has now published the draft legislation aimed at counteracting what it perceives as being the artificial use of dual contracts by non-domiciles (“non-doms”).

The proposed new rules are aimed at preventing contrived arrangements by a small number of high earning UK tax resident non-doms, who create what the government believes to be artificial divisions between the duties of a UK employment and an employment overseas in order to obtain a tax advantage.

The rules will apply to income associated with an overseas employment where an individual has both the UK and overseas employment(s) either with the same employer or with associated/related employers, and the foreign tax rate that applies to the income associated with the overseas employment is less 75 per cent of the UK’s additional rate of tax (currently 45 per cent).

Where income associated with an overseas employment meets the above criteria, it will be taxed in the UK on the arising rather than remittance basis. A credit will be available for any foreign tax suffered, but it is important to note that the income from each overseas employment will be considered independently – i.e. the income and foreign tax credit relief available for all overseas employments are not aggregated when determining the 75 per cent test.

Overseas Workday Relief

This new measure will not apply to overseas income that falls within the three-year period for “Overseas Workday Relief”, and income from an overseas employment that falls outside the above parameters can continue to be taxed under the remittance basis.

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