Update: Non-doms and the Remittance Basis

In our July 2011 Insight we set out details of the Government’s proposals for changes to the Remittance Basis and the introduction of a statutory residence test. A period of consultation was just beginning – with results announced on 6 December – on proposals to introduce a higher £50,000 annual charge, a new relief to encourage business investment and technical simplifications to some aspects of the existing non-domicile rules as well as exemption for gains and losses on bank accounts held in foreign currencies and the introduction of a statutory residence test.

Remittance Basis Charge

The annual Charge is payable by all individuals who claim the Remittance Basis and have been UK resident in at least seven of the last nine tax years (subject to limited exemptions). Since introduction, the Charge has stood at £30,000. Payment of the Charge means that income and capital gains of the relevant tax year escape UK tax unless or until they are remitted (actually or constructively) to the UK.

From tax year 2012/13 the Charge will be increased to £50,000 for individuals who have been UK resident in at least 12 of the last 14 tax years. There will be no further increases during this Parliament.

Funds brought from overseas to pay the Charge are not treated as a remittance, so long as they are paid directly (electronically or by cheque drawn on an overseas bank account) to HM Revenue & Customs and not repaid.

Remittances for investment

From 6 April 2012,resident non-domiciled individuals (non-doms) will be able to remit their overseas income or capital gains to the UK tax-free, where they do so for the purposes of making a ‘qualifying investment’. A ‘qualifying investment’ is an investment in unlisted companies, or those listed on exchange regulated markets, which carry out (or will carry out within 2 years) trading activity on a commercial basis or undertake the development or letting of property.

There will be specific anti-avoidance provisions to ensure the investment is made on proper commercial terms.

Nominated income

The nominated income rules will be amended, with effect from, 6 April 2012, to allow individuals to remit up to £10 of overseas income or capital gains which they have nominated for the purposes of the annual remittance basis charge, without being taxed on that remittance and without becoming subject to the complex identification rules. Whilst this might seem a trivial amount, this relaxation can have the practical effect of greatly simplifying an individual’s record keeping/reporting requirements. As such, it is perhaps advisable for all non domiciled clients (whether on the remittance basis or not) to have an account in mind with a small amount of income only, that could be nominated if required.

Foreign Currency Bank Accounts

From 6 April 2012, the Government is to exempt from UK capital gains tax the withdrawal of funds from foreign-denominated bank accounts for all individuals, personal representatives and Trustees. This is a particularly welcome relief for our non domiciled clients, but as loss relief will also no longer be available, consideration should be given to withdrawals before April that might crystallise a loss.

A statutory residence test

In our July 2011 Insight we reported on the Government’s proposals for a statutory residence test to take effect from April 2012 – which would be subject to a consultation process in which Buzzacott took part.

The Government has now advised that any legislation will be delayed until Finance Bill 2013, and to take effect from April 2013.