Justine Howard, Senior Tax Manager at KPMG LLC, considers the proposed changes to the remittance basis charge for non-UK domiciled individuals from 6 April 2016.
HMRC published a consultation document on 22 January 2015 with the stated aim of further increasing the contribution that non-UK domiciled individuals (“Non-Doms”) make to the UK economy.
The 2008 UK Budget saw the introduction of a formal claim process and a £30,000 remittance basis charge for Non-Doms who have been UK resident in at least 7 out of the previous 9 years and who wish to benefit from a special tax regime whereby they pay UK tax on all their income and gains arising in the UK, but are only taxed on their overseas income and gains to the extent that they are brought to or enjoyed in the UK. Since April 2012, the charge has been £50,000 for those who have been UK resident in 12 out of the past 14 years (due to increase to £60,000 from 6 April 2015) and there will also be a new “super-charge” of £90,000 for those resident in the UK in 17 of the last 20 years, which will therefore be aligned with the inheritance tax deemed-domicile rule.
Now in a bid to raise even more money for the UK Exchequer, HMRC are proposing to introduce a minimum three year claim period for Non-Doms wishing to be taxed under the remittance basis with effect from 6 April 2016. This proposal is intended to prevent Non-Doms from arranging their tax affairs with the aim of opting in and out of paying the remittance basis charge.
This means that Non-Doms (especially those with fluctuating levels of income and capital gains) will have to think very carefully before making a claim as it may not be the most appropriate option over a three year period.
Once the remittance basis is claimed, it can only be withdrawn within 12 months of the statutory filing date, ie by 31 January 2019 for the tax year 2016/17. Alternatively, Non-Doms could pay tax on an arising basis for three years and then decide whether to make a claim as there is a four year time limit after the end of the tax year in which to claim the remittance basis, ie 5 April 2021 for the tax year 2016/17. However, this means that the Non-Dom in question would have to provide HMRC with details of all foreign income/gains upfront and then request a refund if he/she decided later on that it would be more tax efficient to be taxed on a remittance basis.
The question has also been raised as to whether to increase the three year period to four years for Non-Doms resident for 12 out of the past 14 years and to 5 years for Non-Doms resident for for 17 of the last 20 years, which could mean some Non-Doms having to pay £450,000 for the privilege of only paying tax on the remittance basis in addition, of course, to tax on any foreign income or gains actually remitted.
The consultation closes on 16 April 2015.