Resident Non Domicile bringing overseas income and gains to the UK? What tax planning is still possible?
As of 6 April 2009 the rules on remitting income and capital gains were changed and became restricted. However the original proposals made by the UK Chancellor have been diluted. Non domiciled UK resident individuals need to ensure that they plan carefully with regard to remitting non UK income or capital gains to the UK.
The Old Rules
By way of comparison we set out below your taxation position as a non domiciled individual under legislation prior to 6 April 2009:
• You did not pay UK taxation on:
i) Foreign source income and gains.
ii) Capital Gains distributed by overseas Trustees and remitted to the UK.
iii) Income remitted to the UK from sources closed in the previous tax year.
• You did pay UK taxation on:
i)UK source income and gains.
ii)Foreign source income and gains (from personal assets) remitted to the UK.
iii)Trust income remitted to the UK.
The legislation has changed the basis of taxation for Resident and Non Domiciled individuals on their UK and non UK sourced income and gains. Broadly: You will continue to be liable to UK taxation on UK source income and gains. For the first time you will be taxed on gains realised in overseas trusts relating to UK assets;
The remittance of trust gains will no longer be a tax free event;
The use of overseas trust and companies to hold overseas asset and income will continue to be effective and will not be liable to UK taxation.
Income and gains are treated as having been remitted if both of the following are met:
Property is brought to the UK, received in the UK or used in the UK by or for the benefit of a ‘relevant person’ and
The property is (or is derived from) income or gains arising offshore.
A ‘relevant person’ is defined as:
The non -UK domiciled person
Their spouse, civil partner or unmarried partner,
Their children and grandchildren under 18,
Certain companies and trusts that they have set up.
What are the exempt remittances?:
Funds remitted to pay the £30,000, of from 6 April 2012 £50,000 charge,
Jewellery, watches, clothing and footware for personal use,
Any asset other than cash with a value of less than £1,000,
Outright gifts to certain relatives,
Where the amount of offshore income and gains is less than £2,000 in the year, Please note that the £30,000 charge does not apply to minor (those under 18) children.
The Remittance Charge – £30,000 and £50,000
Where you bring funds into the UK, which are sourced from non UK income and capital gains, then you are subject to UK tax on the amounts received only. Amounts which remain outside the UK are not subject to UK taxation. This is known as the remittance basis of taxation.
In order to continue to claim the remittance basis of tax in the UK on overseas incomeand gains you may be required to pay an annual fee of £30,000. You are only required to pay the £30,000 charge if you were resident in the UK for at least for 7 out of the last 9 tax years and you wish to avoid paying UK taxation on your worldwide income and gains and you make an election.
If you have been resident in the UK for 12 of the past 14 years and you claim the remittance basis of tax in the UK on overseas income and gains the annual fee is £50,000.
For those individuals who are caught by the 7 (or 12) year rule claiming the remittance basis will enable you to keep your overseas income and gains out of the scope of UK tax. You will only be taxed in the UK to the extent that the funds are brought into the UK. If the remittance basis is not claimed then you will be required to declare, and pay UK tax on your worldwide earnings. If you are not caught by the 7 (or 12) year rule you can elect to be taxed on the remittance basis without paying the charge.
We recommend that an annual review is made after each tax year so as to determine whether it would be beneficial to pay the £30,000 or £50,000 charge and claim the remittance basis in your tax return for the year. There are circumstances where the charge can be levied on more than one non domiciled individual per household.
Please contact us to discuss your individual needs