Q&A clAiming tAx on A remittAnce bAsis
Good time to defer?
This month we answer a reader’s question about the
rules governing non-domiciled UK residents being
taxed on a remittance basis
I have a client who will have claimed to be taxed under the remittance basis for the
2008-09 tax year as a non-domiciled UK resident. What should he be considering for
the tax year 2009-10?
Name and address supplied
Karen Marks, partner in the
private client tax division of
law firm Boodle Hatfield
The option to be taxed
under the remittance basis
is an annual decision.
The client will need to
assess if they have sufficient
offshore income
and/or gains to make it
worth their while to claim
the remittance basis each
year. It is worth remembering
that foreign exchange
transactions as well as
disposals of assets can
create gains which will be
chargeable.
HMRC may enquire
further into any person
claiming to be taxed as
a non-domiciliary under
the remittance basis and is
likely to scrutinise claims
for non-domiciled status.
The new HMRC guidelines
should be reviewed with
this in mind.
The remittance basis
enables the taxpayer to
defer UK tax charge until
such time as offshore
income and/or gains are
remitted or brought into the
UK directly or indirectly.
There is a wide definition
of what constitutes a remittance.
It will be important
to keep the client’s payments
into the UK and the
source of such funds under
constant review to ensure
no inadvertent remittance
has taken place that would
create a tax charge. Opting
for the remittance basis
and paying the charge, if
applicable, does not prohibit
remittance but such
remittances will be fully
taxable in the UK.
Funds nominated in
respect of the remittance
basis charge should not be
utilised in the UK as the
resulting tax treatment on
all chargeable remittances
can be punitive.
l Segregation
If the client elects to be
taxed under the remittance
basis in the current tax
year, the nominated funds
should already be clearly
identified and segregated to
avoid any inadvertent use
of those funds in the UK.
Funding of the remittance
basis charge and
payments on account
should be discussed in
advance of the due dates
for payment to ensure no
penalties are incurred.
If the client seeks offshore
borrowing linked to
the UK, for example to
purchase a property, care
should be taken to avoid
a remittance of foreign
income and gains by using
such funds or assets as
security. Offshore chargeable
income or gains used
to pay interest or the principal
of a UK-linked debt
will also be a remittance.
The client should keep
a record of any gifts made
offshore to individuals or
connected parties which
may constitute a remittance
if such gifted funds are
brought into the UK. So
gifts of income or gains
to spouses or for the benefit
of minor children or
grandchildren should be
made on the basis that the
funds will not be brought
into the UK. It is for the
client to enquire under self
assessment that no liability
has arisen and report
remittances as necessary.
Using offshore income
and gains to purchase jewellery
and clothes brought
into the UK will not constitute
a taxable remittance.
This exemption will apply
as long as the jewellery or
clothing is brought into the
technical
UK solely for personal use
by either the individual or
a spouse or minor child
or grandchild. There is no
upper limit on the value of
the jewellery or clothing
that may be used in the
UK without constituting a
remittance.
l Foreign losses
If the client has made an
election relating to the use
of their foreign losses, the
order for matching losses
against gains will need to
be factored into any planning.
Losses must first be
set against foreign chargeable
gains that have been
remitted to the UK in that
tax year, then set against
foreign gains arising in that
year which have not been
remitted in that year, and
only finally can the losses
be matched against other
chargeable gains other than
foreign chargeable gains.
So this priority order
should also be a consideration
for the client from
the outset when deciding
whether or not to make
an election. In particular,
it should be noted that any
unremitted foreign chargeable
gains have to be taken
into account before the
losses can be set against
domestic gains.
If you have a question for
the tax panel, please email
dan.judge@lastwordmedia.com
The opinions expressed are those of the
author/panel. The material is for general
information only and does not constitute
investment, tax, legal or other form of advice.
You should not rely on this information to
make (or refrain from making) any decisions.
Always obtain independent, professional
advice for your own particular situation.
August 2009 [www.international-adviser.com] INtERNAtIONAL ADVIsER
33
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