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UPDATE: Residence reform: new amendments unveiled

21 January 2008
Categories: News , Residence & domicile
Comment on the latest provisions that will make a series of changes to current rules

HMRC has published more detail on the amendments to residence and domicile tax rules.

The new documents are:

  • Draft legislation (PDF 116K) covering day counting and the remittance basis of taxation (including the £30,000 charge and personal allowances for those claiming the remittance basis).
  • Explanatory notes (PDF 96K) in relation to this draft legislation.
  • A number of frequently asked questions and corresponding answers explaining the proposals.

The documents are expected to be read in the light of the Treasury's consultative document 'Paying a Fairer Share - a consultation on residence and domicile', published on 6 December 2007.

The new provisions will make a series of changes to the current rules:

  • The residence rules will be amended, so that days of arrival in and departure from the UK will count towards establishing residence.
  • Individuals who are resident but not domiciled, or not ordinarily resident, in the UK will be required to make a claim in order to access the remittance basis of taxation for income and chargeable gains unless their unremitted foreign income and gains are less than £1,000. Individuals who opt for the remittance basis will lose their entitlement to personal allowances and the capital gains tax annual exempt amount.
  • Individuals who are resident but not domiciled, or not ordinarily resident, in the UK for longer than seven out of the past ten years will only be able to access the remittance basis of taxation on payment of an annual charge of £30,000, unless their unremitted foreign income and/or gains are less than £1,000.
  • The current rules will be amended to remove flaws and anomalies that allow individuals using the remittance basis to avoid paying tax on foreign income and gains where it is properly due.

The amendments in the draft legislation - not yet in its final form - are to be put before Parliament in the 2008 Finance Bill. Subject to the bill becoming law they will (broadly) take effect from 6th April 2008.

The draft legislation is 'incredibly complicated' says PKF's Phillip Dearden, and advisers will have to read it carefully.

Phillip's initial thoughts are that the legislation relating to residence and the remittance basis are pretty much as expected, although with a lot of fine tuning.

He notes that HMRC will be counting the days of arrival and departure as days in the UK towards the 91 day test as well as the 183 day test.

This, he says, is likely to lead to dispute since the 91 day test is an HMRC practice, and it is being tweaked without the support of statute.

What was not known at the Pre-Budget Report was how offshore trusts and companies would be treated. This is covered in the draft legislation.

Non domiciles resident in the UK who have offshore companies or interests in offshore trusts will be subject to UK tax on income or gains arising from UK investments made by those entities.

However, disposals of foreign assets may be subject to the remittance basis. Phillip suggests that a possible outcome of this will be that some investments in such companies or trusts may be driven offshore.

STEP deputy chairman, John Riches, says that the consultation 'is undermined as many important decisions, particularly on capital gains tax, have in practice already been taken'.

It is 'astonishing', he says that 'after five years of review, HMRC have not undertaken a proper analysis of the impact these changes will have on the UK economy'.

Comments on the draft legislation should be sent to Offshore Personal Tax team by email, or to Offshore Personal Tax team: Room G72, 100 Parliament Street, London SW1A 2BQ.

The deadline for responses to the consultation document is 28 February 2008, but comments on the draft legislation will be accepted by the Treasury beyond this date.

Categories: News , Residence & domicile
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