January 22, 2008

Draft Legislation - Residence and Domicile
Draft legislation and explanatory notes have now been issued by HM Revenue & Customs in respect of changes to the residence and domicile rules announced in the October Pre-Budget report.

The draft legislation deals with:

  • the counting of days in and out of the UK
  • the remittance basis of taxation, including the £30,000 charge and personal allowances for those claiming on the remittance basis.

The draft legislation for the PBR changes on residence and domicile has been published. This confirms that sweeping changes will be brought in for non-UK domiciled individuals from 6 April 2008. This legislation represents the most substantive change made to a regime for 90 years.

Amendment to the residence rules

In brief -

  • Days of arrival and departure will be included when counting the days for the 183 day rule.
  • Days of arrival and departure will be included when counting the days for the 91 day average test.
  • A temporary non-residence rule has been introduced such that remittance basis users must be nonresident for 5 complete tax years; if not any relevant foreign income remitted to the UK in years following departure and before return to the UK will be taxed in the UK in the year of return.

Making a claim for the remittance basis to apply

From 6 April 2008 a claim for the remittance basis will need to be made by all UK residents who are eligible to claim (not UK domiciled) and who wish to be taxed on that basis in relation to employment income, investment income and capital gains. Currently a claim only needs to be made in respect of investment income.

The personal self assessment tax return for 2008/2009 will include a tick-box to make the claim.

The remittance basis will apply automatically to relevant individuals who have unremitted income and gains in a tax year of less than £1,000.

The draft legislation confirms that those eligible will be able to choose from one tax year to another whether they wish to be taxed on the remittance basis.

Additional costs for individuals claiming the remittance basis

Individuals entitled to claim the remittance basis due to their non-UK domiciled, or non-UK ordinarily resident status and who have been UK resident for at least eight out of the last 10 years up to and including the year in which a remittance basis claim is made will be liable to pay a charge of £30,000.

So if an individual has been resident since 2001/2002 then they will be liable to the £30,000 charge if they wish to claim the remittance basis from 6 April 2008.

This charge is in addition to any tax liability for the year in question which may arise due to making taxable remittances.

Those eligible individuals who choose to be taxed under the remittance basis will not be entitled to claim various personal tax allowances including the income tax personal allowance and the capital gains tax annual exempt amount.

Removal of ‘flaws and anomalies’ from the remittance basis

The long standing HMRC practice of accepting that no tax liability can apply to remitted amounts if the source of the funds remitted does not exist in the year of remittance has been overturned by the proposed legislation.

Statutory rules have also been introduced in order to identify remittances from mixed funds.

Source : PriceWaterhouse Coopers

Kieran O'Connor
Cambridge Tax Practice Ltd
Cambridge Tax Practice Ltd
ASK House
Northgate Avenue
Bury St Edmunds
Suffolk IP32 6BB
Office 01284 768941

Posted 20Jan08