Residence and Domicile Update

Further to the April 2010 article, the Finance Act 2011 has changed the legislation with regards to how long-term residents are taxed in the UK.

As stated previously if you are UK born and bred, then unless you have taken action otherwise you will be treated as a UK resident and domiciled and therefore taxable on all of your worldwide income.

However, if you are non UK domiciled (usually meaning that you were born outside of the UK) but you are resident in the UK on average for more than 91 days per tax year over any four year period, or for more than 183 days in any one tax year, you will be treated as being tax resident in the UK for that year in question.

If you have been assessed as UK tax resident for less than seven years (in the last ten) then you are free to claim what is known as the remittance basis which means that you are assessable on any income or gains arising in the UK during that particular tax year, plus any income or gains which you remit back to UK from overseas in that tax year. You would not however be taxable on any income which is not remitted back to the UK under UK Income Tax Legislation.

However, once you have been UK tax resident for more than seven years (in the last ten), your automatic right to claim the remittance basis comes under question. In this case, if you wish to choose to continue to use the remittance basis, you would remain taxable on any UK arising income or gains and also on any income/gains remitted to the UK, you would also be due to pay what is known as a remittance basis charge of £30,000 per tax year.

The new piece of legislation applies to individuals who have been UK tax resident for more than 12 years as these individuals would remain taxable on any UK arising income/gains and also on any income/gains remitted to the UK, but with an increased remittance basis charge of £50,000 per tax year.

Please note that, except in some select circumstances, claiming the remittance basis also means that you will not be able to claim UK tax allowances such as the Personal Allowance or Annual Exemption for Capital Gains Tax.

Of course, you do not have to claim the remittance basis and you could choose to use the ‘arising basis’ meaning that you are taxable in the UK on your worldwide income during that year.

Should any of this income have already been taxed offshore then, subject to any double taxation treaties with that particular country, you would be able to claim double tax relief in the UK against any tax that has already been paid on that income overseas.

Future developments

It should also be noted that the UK government has also launched further consultations with regards to introducing a Statutory Residence Test with effect from 6th April 2012 although draft legislation should be available before 6th April 2012.

It does appear from the current consultation documents, that the tests with regards to whether an individual is treated as being resident or non-resident will be much stricter, and that days spent in the UK prior to 6th April 2012 may be taken into account with regards to future residency status.

If you should have any queries on the changes to the remittance basis charge or with regards to the current consultation documents, please contact a member of our team on 01474 853856.

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