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HM Revenue & Customs issue further guidance on the new residence and domicile rules

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19 January 2009

On 13 January 2009 HM Revenue & Customs (HMRC) issued a list of frequently asked questions (FAQs) and corresponding answers about the new residence and domicile rules. There are now over 100 FAQs on HMRCs website on this topic. Please put a link behind here to the following webpage: http://www.hmrc.gov.uk/cnr/res-dom-faqs.htm

What are the new rules?

The new rules came into effect on 6 April 2008 and impact on those individuals who are resident in the UK but are either not ordinarily resident or not domiciled here.

The main rule changes are:

  • From 6 April 2008, a non-UK domiciled individual, who has been resident in the UK for seven of the nine tax years immediately preceding the year in question must, if they wish to continue to be taxed on the remittance basis, pay an annual charge of £30,000.  (The remittance basis of taxation is where, while an individual is taxed like other UK residents on their income and gains arising in the UK, they are also taxed on any income or gains they ‘remit’ to this country (bring into the UK from overseas). They are not taxed on their foreign income and gains which remain outside the UK). Individuals can opt in and out of the remittance basis on a year by year basis. If the remittance basis is claimed and offshore income and gains are £2,000 or more the individual loses their entitlement to UK personal tax allowances and the annual exempt amount for capital gains.
  • If offshore gains and income are below £2,000 per annum the remittance basis will still apply without the payment of the charge and the individual will still be able to claim the usual personal tax allowances and capital gains exemptions.
  • People entitled to the remittance basis may choose not to claim it. They will then be taxed in the same way as other UK Residents (on the arising basis). Tax will become due on worldwide income and gains for that tax year. But the remittance basis charge will not apply and they will be entitled to UK personal tax allowances and annual exempt amount for capital gains. They will need to complete a UK Self Assessment return if they have any foreign income or gains for that year.
  • From 6 April 2008 there is a new test to determine whether an individual is resident in the UK for a particular year. A person will be treated as present in the UK for any day that the person is present in the UK at midnight. (There will be an exemption for passengers who are in transit through the UK to reach their ultimate destination).
  • From 6 April 2008 there will be significant changes to the way the capital gains tax will be charged on offshore trusts.  

What issues do the questions cover?

The FAQs are split into the following topics:

  • Alienation
  • Arising basis
  • Day counting
  • Disclosure
  • Domicile status
  • General
  • Non-resident trusts
  • PAYE
  • Personal allowances
  • Remittances
  • Application of section 809W ITA
  • The remittance basis and the £30,000 charge

Many of the questions are practical, such as how to make sure that the £30,000 charge will not be treated as a taxable remittance.
The answers are based on the final legislation as contained in Schedule 7 to the Finance Act 2008. However you should bear in mind that the answers are purely HMRCs interpretation of the rules.

Further advice

If you would like more advice on the new rules and how they affect you please speak to your usual Hazlewoods contact or e-mail tax@hazlewoods.co.uk .