Budget Summary: Residence and Domicile

March 2008

The Pre-Budget Report proposed that there should be an annual £30,000 charge on non-UK domiciled individuals resident in the UK for at least seven out of the previous nine tax years who wish to claim the remittance basis for 2008/09 onwards. The Chancellor announced that the rules will not be substantially revisited for the rest of this Parliament and the next one. There are several changes to the original proposals.

The residence test

Non-domiciled individuals who claim the remittance basis of taxation are called ‘remittance basis users' (RBUs). RBUs with unremitted foreign income and gains of less than £2,000 a year will be exempt from the £30,000 charge and will not lose their entitlement to certain allowances and reliefs.

The £30,000 charge will only apply to adults. Non-domiciled individuals who are not RBUs in any given tax year will get relief for their foreign capital losses.

Untaxed foreign income that is used to fund interest payments on existing offshore mortgages secured on UK property will not be treated as a taxable remittance. This applies to all payments from 6 April 2008 until the end of the mortgage or 2028 if sooner.

The £30,000 charge

Individuals who pay the £30,000 charge will have RBU status for that year. They may then choose what foreign unremitted income or gains the charge relates to. Then any earmarked income or gain will not be taxed again if it is remitted to the UK . However, untaxed unremitted foreign income and gains are taxed as if they are remitted first before the income and gains on which the £30,000 charge has been paid. It should be possible to credit the £30,000 charge against foreign tax. If the £30,000 is paid directly to HMRC from an offshore source, the payment will not itself be taxed as a remittance.

Certain loopholes associated with the remittance rules will be closed.

Personal effects and assets costing less than £1,000, assets brought into the UK for repair or restoration and assets in the UK for less than nine months purchased out of foreign income will not be treated as a remittance.

Artworks brought into the UK for public display in an approved establishment will also not be taxed as a remittance.

Extensive changes will be introduced to the capital gains tax regime for non-resident trusts. These differ from the provisions in January's draft legislation. From 6 April 2008, non-domiciled beneficiaries of non-resident trusts who are RBUs will only be taxed on the remittance basis on payments out of trust income and gains. Trustees may irrevocably elect to rebase their trust assets held at 6 April 2008, so as to exclude any pre-6 April 2008 gains from being taxed on non-domiciled beneficiaries. Settlors and beneficiaries of non-resident trusts will not need to disclose details of remitted trust payments to HMRC or details about the trustees, unless this is necessary in order to declare a tax liability, or HMRC makes specific enquiries of the beneficiary.