UK tax changes affecting non-UK domiciliaries
Please note that the details on this page reflect the contents of the 2008 Budget and its associated paperwork. Some points may therefore have been superseded by subsequent events.
In his pre-Budget Report (on 9 October 2007) the Chancellor announced sweeping changes to the way UK resident foreign domiciliaries will be taxed. On 18 January 2008, the Treasury published draft legislation to be introduced in the Finance Bill 2008. During his Budget speech Mr Darling confirmed that the changes will be implemented from 6 April 2008, however the accompanying Budget notes and supplementary documentation included details of substantial modifications to the previously announced proposals (especially those relating to offshore trusts).
Changes to the definition of a remittance and the taxation of offshore structures are highly significant and a detailed briefing note on the issues is available. The headline issue concerns the remittance basis charge. With effect from 6 April 2008, there will be a new tax charge of £30,000 for non-UK domiciled adults who have been resident in the UK for at least seven out of the previous nine tax years and who elect for the remittance basis to apply.
If individuals choose the remittance basis, regardless of whether or not the £30,000 charge applies, there are additional consequences when computing the UK tax liability:
- It will no longer be possible to claim the personal allowance, the married couple's allowance, the blind person's allowance or relief for life insurance payments
- The capital gains tax annual exemption will no longer be available
The claim for the remittance basis is to be made on the Self-Assessment Tax Return.
It is an annual claim so the decision to elect can be made from one tax year to another.
Instead of the original proposal to have a stand alone levy, the £30,000 cost of continuing to claim the remittance basis will be a tax charge on account of unremitted income and/or gains with specific matching rules. The charge will be collected in the UK through the Self-Assessment system, the proposed amendments make it more likely that other tax authorities will give credit for the charge.
However, if unremitted income and gains are under £2,000 (increased from £1,000) individuals will automatically be entitled to the remittance basis and will not lose their personal allowances.
We now have a clearer picture of the changes to the taxation of UK resident foreign domiciliaries. There are still issues with some of the proposals and we need to see the revised legislation. However, the regime currently proposed is far better that that set down in the initial draft legislation
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