IRS agrees remittance charge treatment

After three years of uncertainty, the US Internal Revenue Service has announced that it will accept payment of the UK remittance basis charge as a creditable foreign income tax. For Americans with sufficient non-UK taxable income, this may make claiming the remittance basis more attractive. Those Americans who have already paid the remittance basis charge may want to review whether they can claim US tax relief with their tax advisers.

Currently, non-domiciled individuals resident in the UK for seven out of the last nine UK tax years have to choose whether to pay the £30,000 remittance basis charge or be taxed on worldwide income. From 6 April 2012 that charge will increase to £50,000 for individuals who have been resident for 12 or more years.

The Treasury has released a consultation document regarding the development of a statutory definition of ‘residence’. While the proposed rules promise clarity, it will clearly be more difficult for those who have been resident to break UK residency. In particular, the rules, as currently proposed, will make it difficult for those who have young families to break residency if their family remains in the UK.

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