HMRC recently sent out letters to several taxpayers querying whether a claim for the remittance basis had been made correctly, specifically querying the deemed domicile of the taxpayer.
The starting point for tax is that UK resident individuals are liable to UK tax on their worldwide income and gains arising in a tax year.
However, someone who is not domiciled in the UK, may make a claim to be assessed on a remittance basis instead, meaning that any foreign income or gains will be liable to UK tax only when they are remitted to the UK.
Complex rules apply to identify when amounts are remitted to the UK, you should seek advice before attempting a claim under the Remittance Basis.
Wherever I lay my hat….
Do you know your Domicile?
Surprisingly, Domicile is not a term that is defined in tax legislation, instead the concept is one of general law. Historically there have been three kinds of domicile:
•Domicile of origin – the domicile of an individual’s father at birth (or mother if illegitimate);
•Domicile of choice – after the age of 16 an individual can obtain a domicile of choice if they become resident in a country and the intention is for them to reside there indefinitely;
•Domicile of dependency – a person’s domicile follows that of who they are legally dependant, i.e. if a person acquires a domicile of choice, so do their dependants.
Deemed domicile
From 6 April 2017, new deemed domicile rules came into force whereby an individual who was not UK domiciled under UK law would be treated as domiciled in the UK for income tax and capital gains tax purposes (ITA 2007, s. 835BA). The legislation sets out two conditions:
•Condition A – This condition is met if an individual was born in the UK, has a UK domicile of origin and is resident in the UK for the relevant tax year; and
•Condition B – This condition is met if an individual has been UK resident for at least 15 out of the 20 previous tax years.
Surprisingly, if an individual meets the criteria for either of these conditions, although they may be non-UK domiciled under general law, they will be regarded as domiciled in the UK for income tax purposes!
Subsequently, if their unremitted income and gains exceed £2,000 in a tax year, they will not be able to claim the remittance basis and their worldwide income and gains will be taxed on an arising basis.
Remittance basis charge
If a non-UK domiciled individual’s unremitted income and gains in any tax year exceeds £2,000, a claim to be assessed on the remittance basis must be made to HMRC.
Depending on how long an individual has been UK resident, a charge may apply
•£30,000 for individuals who have been UK resident for at least 7 of the previous 9 tax years immediately before the year of claim;
•£60,000 for individuals who have been UK resident for at least 12 of the previous 14 tax years immediately before the year of claim.
In Summary…
As the self-assessment tax return deadline comes closer it is important that review their circumstances, especially those who have been UK resident for a number of years, to ensure that they are still eligible to claim the remittance basis and, if so, that the correct level of remittance basis charge is paid.
Please contact us for a free consultation.
