In September, the Chartered Institute of Taxation (CIOT) reported that HMRC sent out ‘nudge’ letters to taxpayers querying whether a claim for the remittance basis had been made correctly and, if necessary, the correct remittance basis charge paid.
Generally, 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.
Domicile
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 whom they are legally dependent, ie, if a person acquires a domicile of choice, so do their dependents.
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.
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 and, depending on how long an individual has been UK resident, a charge may apply (the remittance basis charge).
From 6 April 2017 there are two levels of remittance basis charge:
• £30,000 for individuals who have been UK resident for at least seven of the previous nine 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.
Conclusion
As the self-assessment tax return deadline comes closer it is important that individuals and their agents 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.
