Following the Budget on 12 March 2008, the Finance Bill which reflects the Government’s current policy intentions for changes to the taxation of individuals resident but not domiciled in the
Since the issue of the Consultation Paper in December 2007 and the initial draft legislation in January 2008, the Government has clarified and modified some of its original proposals, but the effect remains that, with effect from 6 April 2008, the basis of taxation for those who are resident but not domiciled in the UK has fundamentally changed.
The main changes can be briefly summarised as follows:-
1. Residence
The original proposal to count days of arrival in and departure from the
2. New Remittance Rules
2.1 The remittance basis of taxation will apply automatically to an individual whose foreign income and gains for any tax year are less than £2,000. This has been increased from the original proposal of £1,000.
2.2 Adults who have been resident in the UK for 7 out of the previous 10 years will only be able to opt for the remittance basis of taxation (i.e. to pay tax on UK income and gains but only on foreign income and gains which are remitted to the UK) if they make a claim for each year in which they wish to be taxed on that basis and pay a charge of £30,000 for each year in which such a claim is made. In that case, the taxpayer will not receive any personal allowances for income tax or the benefit of the annual exempt amount for the purposes of capital gains.
It has now been confirmed that if the funds used to pay the £30,000 charge comprise foreign income and/or gains, they will not be treated as taxable remittances provided they are paid directly to HM Revenue & Customs to cover the £30,000 charge.
2.3 Taxpayers who do not make a claim to be taxed on the remittance basis will be taxed on their worldwide income and gains for that year on an arising basis.
3. Offshore Companies
With effect from 6 April 2008, individuals who are resident but not domiciled in the UK and who are participators in offshore companies, will be treated as having received gains when UK property is disposed of and the gain is realised, or when gains are realised from the sale of non-UK sited property and the proceeds remitted to the UK; similarly, when non-UK sited property is disposed of at less then than the market value and that property or other assets derived from it are subsequently brought into the UK.
4. Offshore Trusts
4.1 The original far reaching proposals have been modified to some extent. The exemption from the Settlor charge for non-UK domiciled settlors of non-UK resident trusts will remain, although they, and other non-UK domiciled beneficiaries, will be liable to tax on receipt of payments (and this includes benefits in kind) if they are remitted to the UK after 6 April 2008.
4.2 Non-resident trustees will be given an option to rebase trust assets to the market value at 6 April 2008 for all assets held directly by the trust and any underlying companies. A rebasing election will mean that trust gains accruing but not realised prior to 6 April 2008 will not be chargeable if matched to capital payments made on or after 6 April 2008 to non-UK domiciled beneficiaries. The effect of this will be that on a subsequent disposal of an, asset the disposal value will be divided into pre 6 April 2008 gains/losses and post 6 April 2008 gains/losses.
These rules will apply to all gains realised by the trust whether on
It should also be noted that use of the rebasing election is to be coupled with the need to provide more detailed information about the relevant trust to HM Revenue & Customs.
Summary
These are extremely complex provisions and this is the briefest of summaries so it is important that all individuals who may be affected take professional advice.