Following the significant changes to the taxation of non domiciled UK residents in last year’s Finance Act, today’s Budget note introduces some minor changes to the rules – and they are minor.
The most helpful is the extension of the exemptions (such as the personal use exemption) to assets purchased with foreign employment income and capital gains as well as relevant foreign income (interest dividends etc). Under the existing rules if a non dom bought an asset, such as a watch, for £1,500 out of foreign bank interest and brought it to the UK it would not be a taxable remittance, but if the watch had been bought with employment income or capital gains it would be taxable. With back dated effect (to 6 April 2008) there is no distinction between the type of income used to purchase the asset.
The Budget note also makes it clear that those individuals who are entitled to the remittance basis without a claim (such as those with less than £2,000 unremitted income or gains) will be deemed to have made a claim unless they 'opt-out' by notifying HM Revenue & Customs (HMRC). The number of individuals affected by this has also been extended to include those who make no remittances and have less than £100 of UK income. Previously if they had as little as a penny of UK income there was a requirement to claim the remittance basis by submitting a tax return.
There is some useful clarification on the interaction of the remittance basis and the settlements legislation and the availability of the £30,000 remittance basis charge to cover the tax credit on Gift Aid donations. There is also a change which relates to domiciled individuals who are not ordinarily resident in the UK who can also take advantage of the remittance basis. There is a relaxation to the requirement to submit a tax return for a UK resident employee who also has overseas employment income which is taxed overseas – provided that the individual has no more than £10,000 such income and less than £100 taxed overseas bank interest.
In addition there is the previously announced statement of practice relating to transfers from offshore bank accounts that contains predominantly income relating to one employment contract.
HMRC have spotted two areas of potential abuse in the new rules. There is an anti-avoidance measure which defines the meaning of a 'participator' in the context of 'relevant persons'. In addition there is clarification of the rules for determining the value of an asset remitted which forms part of a larger set such as a series of linked artworks or a stamp collection.
All these changes have little real effect on the extremely complex rules introduced last year, although may avoid some of the more absurd scenarios that could have arisen.
Comment on this blog in the space provided below. Barry Hallam is a Senior Tax Manager at Mercer & Hole.
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