Tax & Accounting News

Remittance basis and UK residence - new draft legislation

23/01/2008

HMRC has published draft legislation, explanatory notes, and FAQs on the proposed changes to the remittance basis and UK residence rules from 6 April 2008.

The main changes are summarised as follows:

UK residence

Days of arrival in and departure from the UK will count for the purposes of the 183 days test for residence in any one tax year, and the 91-day average test for residence over a four-year period.

The only exception will be for passengers in transit. This is narrowly defined as those who do not leave the part of a port or airport that is only accessible to arriving or departing passengers. This may cause problems for those who have to change airports (or even terminals!), especially those who travel to and from the Channel Islands via the UK.

Remittance basis - £30,000 annual charge

• The charge will be payable by non-domiciled individuals who have been UK-resident in at least 7 out of the last 9 tax years immediately preceding the year in question, and who claim to use the remittance basis in that year.

• Individuals who have been UK-resident for less than 7 years can claim the remittance basis without having to pay the charge. Individuals with foreign income and gains of less than £1,000 do not need to make a claim and will not be liable to pay the charge.

• Those who do make a claim will not be entitled to personal allowances or the capital gains tax annual exemption.

• It will be possible to opt in and out of the remittance basis from year to year.

• The charge will be payable on the normal Self Assessment due dates, and it cannot be offset against tax due on funds remitted to the UK.

Remittance basis - anti-avoidance

Existing loopholes will be closed and definitions tightened as follows:

• It will no longer be possible to remit offshore bank account interest tax-free in the year after the account has been closed.

• Similarly, it will no longer be possible to remit income tax-free in the following year by claiming the remittance basis in the first year but not the second.

• All 'remittances in kind' (e.g. a car or jewellery) will be taxable.

• It will no longer be possible to make tax-free remittances by making gifts to a close relative.

• It will no longer be possible to wash out offshore gains by settling assets into an offshore trust.

• It will no longer be possible to make tax-free remittances of income from offshore income funds that produce income gains by remitting it in the year in which it arose.

• The rules in relation to UK resident but non-UK domiciled settlors and beneficiaries of non-UK resident trusts are being tightened. Settlors will become assessable to gains, if they or members of their family are beneficiaries. Gains on UK assets will be assessed on an arising basis, and gains on non-UK assets will be assessed on a remittance basis. Beneficiaries will be assessable to tax when they receive capital payments, even if these are not remitted to the UK.

• Non-UK domiciled controlling shareholders will be assessed on gains realised by their companies - on an arising basis in relation to gains on UK assets, and on the remittance basis in relation to gains on non-UK assets.

Please contact us to discuss how the new rules will affect you, and what can be done both before and after 5 April 2008 to minimise their impact.

 

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