Money from abroad

The Budget announcements in March included several welcome modifications to the government’s reforms to the taxation of non-domiciliaries, which took effect on 6 April 2008.

People with unremitted overseas income and gains of less than £2,000 in a tax year will now not lose the benefit of the remittance basis, personal allowances and capital gains tax annual exemption after seven years of UK residence. The original proposals specified a £1,000 limit. The higher limit will make it easier to retain the remittance basis by switching to investments that produce little or no income, to keep your unremitted overseas income below £2,000.

People with large amounts of overseas income will still have to pay an annual tax charge of £30,000 if they have been resident in the UK for at least seven of the previous nine tax years and want to avoid being taxed on their overseas income and gains as they arise.

However, the £30,000 will now not be a stand-alone charge but a tax charge on unremitted amounts. Individuals will be able to choose the unremitted income or gains on which the £30,000 is paid. Those sums will then not be taxed when they are eventually remitted to the UK.

It is also likely that the £30,000 charge will count as income tax or capital gains tax under double taxation agreements. Another concession is that individuals under the age of 18 will not have to pay the charge.

The new capital gains tax rules for non-resident trusts have also been modified. In particular, trustees can opt to exclude unrealised trust gains that accrued up to 5 April 2008 from being taxed on non-UK domiciled beneficiaries under the new rules.

Changes to the way the remittance basis works will make it harder for people to avoid tax. For example, in the past there was no tax on income brought into the UK in a tax year in which the source of that income, such as a bank account, no longer existed. Now, if you have claimed the remittance basis for a year, the income of that year will be taxed whenever it is remitted. There are also tighter rules for income and gains remitted in the form of assets.

If you are non UK-domiciled, you should take advice now so that you can arrange your affairs to minimise your UK tax and try to avoid some of the complications of applying the new remittance basis rules.