Budget
2008
RESIDENCE AND DOMICILE
The
Pre-Budget Report proposed that there should
be an annual £30,000 charge on non-UK
domiciled individuals resident in the UK for
at least seven out of the previous nine tax
years who wish to claim the remittance basis
for 2008/09 onwards. The Chancellor announced
that the rules will not be substantially revisited
for the rest of this Parliament and the next
one. There are several changes to the original
proposals.
The residence test
Any
day in which an individual is present in the
UK at midnight will count as a day’s
presence. Days spent in transit, even involving
changes between methods of transport, will
not count as a day’s residence, unless
the individual carries out activities that
are substantially unrelated to the transit
process (eg a business meeting).
Non-domiciliaries’ income, losses and
mortgage interest
Non-domiciled
individuals who claim the remittance basis
of taxation are called ‘remittance basis
users’ (RBUs). RBUs with unremitted
foreign income and gains of less than £2,000
a year will be exempt from the £30,000
charge and will not lose their entitlement
to certain allowances and reliefs. The £30,000
charge will only apply to adults. Non-domiciled
individuals who are not RBUs in any given
tax year will get relief for their foreign
capital losses. Untaxed foreign income that
is used to fund interest payments on existing
offshore mortgages secured on UK property
will not be treated as a taxable remittance.
This applies to all payments from 6 April
2008 until the end of the mortgage or 2028
if sooner.
The £30,000 charge
Individuals
who pay the £30,000 charge will have
RBU status for that year. They may then choose
what foreign unremitted income or gains the
charge relates to. Then any earmarked income
or gain will not be taxed again if it is remitted
to the UK. However, untaxed unremitted foreign
income and gains are taxed as if they are
remitted first before the income and gains
on which the £30,000 charge has been
paid. It should be possible to credit the
£30,000 charge against foreign tax.
If the £30,000 is paid directly to HMRC
from an offshore source, the payment will
not itself be taxed as a remittance.
Think
ahead
If you are non-UK domiciled, you need to plan
for the changes to the remittance basis. Take
advantage of the current rules for foreign
income and gains before 6 April 2008. Get
advice as a matter of urgency.
The remittance basis – closing
‘loopholes’
Certain
loopholes associated with the remittance rules
will be closed. Personal effects and assets
costing less than £1,000, assets brought
into the UK for repair or restoration and
assets in the UK for less than nine months
purchased out of foreign income will not be
treated as a remittance. Artworks brought
into the UK for public display in an approved
establishment will also not be taxed as a
remittance.
Non-resident trusts
Extensive
changes will be introduced to the capital
gains tax regime for non-resident trusts.
These differ from the provisions in January’s
draft legislation. From 6 April 2008, non-domiciled
beneficiaries of non-resident trusts who are
RBUs will only be taxed on the remittance
basis on payments out of trust income and
gains. Trustees may irrevocably elect to rebase
their trust assets held at 6 April 2008, so
as to exclude any pre-6 April 2008 gains from
being taxed on non-domiciled beneficiaries.
Settlors and beneficiaries of non-resident
trusts will not need to disclose details of
remitted trust payments to HMRC or details
about the trustees, unless this is necessary
in order to declare a tax liability, or HMRC
makes specific enquiries of the beneficiary.
