17. TC - Overseas aspects of IT and CGT Flashcards
Why is it important to determine a taxpayer’s residence and domicile?
TO identify the tax treatment of overseas and UK income
How do you know whether an individual is a resident?
- To decide an inidivudla’s residence a statutory resident test applies
But you don’t need to know the detail for exam
Will be told if the taxpayer is a UK resident or not
What is a domicile?
An individual’s domicile is the country in which he or she has their permanent home
What is an individuals domicile when they are born?
An indiv acquires a domicile of origin at birth
This is usually the domicile of the individual’s father if his or her parents were married at the time of the birth, or the mother otherwise
When may a domicile change?
Domicile is retained unless the indiv acquires a domicile of choice:
- From 16, an indiv can change from one dom to another
- Can occur when someone shows an intention to change the country of their permanent home, and servers ties with their previous country of domicile
TYU1: Oscar was born is Singapore because his UK domiciled father, Alan, was working their at the time. Oscar’s mother Vera was American domiciled and was married to Alan at the time of Oscars birth
Following Vera’s death, Oscar and Alan moved to Australia when Oscar was 11 years old. Alan severed all ties with Signapore and the UK
Oscar moved to UK for uni and has never returned to Australia. He has reserved a plot at a natural burial ground in the UK
Explain Oscars domicile
As his parents were married at the time of his birth and his father was UK domiciled, he has a UK domicile of origin
His birthplace is irrelevant
When Oscar was 11 years old, his domicile change to Alans, as it appears Alan adopted Australia as his domicile of choice, so it also became Oscar’s domicile of dependence
Oscar appears to have chosen the UK as his new domicile by renouncing all ties with Australia, his prev country of domicile
His intention to be buried in the UK indicates his intention to remain permanently
When is an individual a formerly domiciled resident?
the indiv was born in the UK, had domicile of origin in the UK and is UK resident of the tax year.
What does the concept of deemed domicile apply to?
Overseas IT and CGT Inheritance tax (but the rules are slightly different)
What are the 2 bases of assessment depending on domicile?
Arising basis
Remittance basis
What is the basis of assessment under the arising basis
An individual will pay UK income tax at normal rates on their worldwide income for the tax year in which in the income arises
What is the basis of assessment under the remittance basis?
Non-domiciled UK resident individual pays UK income tax on their UK income for the tax year in which the income arises
But only pays UK tax on foreign income when the income is brought (remitted) to the UK
What is the basis of assessment under the remittance basis?
Non-domiciled UK resident individual pays UK income tax on their UK income for the tax year in which the income arises
But only pays UK tax on foreign income when the income is brought (remitted) to the UK
What basis is UK income and overseas income taxed under when the indiv is Resident and domiciled
UK Income- arising
Overseas income - arising
What basis is UK income and overseas income taxed under when the indiv is Resident but not domiciled
UK Income- arising
Overseas income - possible remittance
What basis is UK income and overseas income taxed under when the indiv is not resident
UK Income- arising
Overseas income - not taxable
What are non-resident individuals taxed on?
Taxed in the UK on their UK income
Are non-resident individuals entitled to a personal allowance?
Generally not unless they are
- EEA, isle of Man or Channel Islands citizens
- Current or former crown servants and their widows/widowers
- Former residents who left the UK for health reasons
What is remitted foreign income taxed under?
Nonsavings income
Can personal saving allowance and dividend allowance be used against remitted foreign savings?
NO
Can personal saving allowance and dividend allowance be used against dividend income?
NO
When does the remittance basis automatically apply to non-domiciled UK resident individuals?
- if the indiv has unremitted foreign income and gains under £2k in tax year
- The indiv has no UK income or gains in TY (or only has UK investment income of under £100), doesn’t remit any foreign income and gain that arose in prior years under remittance basis AND
- > has not been resident in UK for more than 6/9 last tax years OR
- > is under the age of 18 for the whole tax year
If the remittance basis applies automatically to a non-domiciled UK resident indiv, are they entitled to personal allowance and how is overseas income taxed?
They ARE entitled to personal allowance
The overseas income is taxed when remitted to the UK
When are overseas earnings taxed on the remittance basis?
ONLY if the indiv’s employer is also non-UK resident
Can non-domiciled UK resident indivs ever get the remittance basis if it doesn’t apply automatically?
Yes, they can make a claim to use the remittance basis
What is the difference in treatment if a non-domiciled UK resident individual makes a claim to use the remittance basis or when it applies automatically?
If claimed, they are not entitled to a personal allowance
What income does it apply to when the remittance basis is claimed for non-domiciled UK resident individuals?
Applies to both income and gains of the non-domiciled UK resident individual
TYU3a: Danielle was born in France and French domiciled
She has been a resident in UK for the last 2 years
She runs her own confectionery business and earns £44k/annum in the UK
She also has income of £7.5k/yr from a property she owns in Paris (she does not remit this income to the UK)
Calc her income tax liability for 19/20 assuming she DOESN’T claim the remittance basis for the year
Danielle is UK resident but non-UK domiciled
Her unremitted overseas income in TY is over £2,000 so the arising basis will apply automatically and PA is available
UK trading income £44k
Non-UK property income £7.5k
Net income £51.5k
Less PA £(12.5k)
Taxable income £39k
Income tax:
NSI BR £37.5k x 20% £7.5k
NSI HR £1,500 x 40% £600
Income tax liability = £8,100
TYU3b: Danielle was born in France and French domiciled
She has been a resident in UK for the last 2 years
She runs her own confectionery business and earns £44k/annum in the UK
She also has income of £7.5k/yr from a property she owns in Paris (she does not remit this income to the UK)
Calc her income tax liability for 19/20 assuming she DOES claim the remittance basis for the year
Danielle is UK resident but non-UK domiciled
Her unremitted overseas income in TY is over £2,000 so the arising basis will apply automatically and PA is available
But elects for remit so PA NOT available
UK trading income £44k
Non-UK property income £n/a
Net income £44k
Less PA £(-)
Taxable income £44kk
Income tax:
NSI BR £37.5k x 20% £7.5k
NSI HR £6,500 x 40% £2,600
Income tax liability = £8,100
When may a remittance basis charge (RMC) apply?
May apply if a non-domiciled UK resident indiv has claimed the remittance basis and is over 18
- If the RBC of £30k applies if the indiv has been a UK resident for 7/ last 9 tax years
- £60k if been UK resident for 12/ last 14 TY
Once they have been a resident for 15 years or more, they will be deemed Uk domicile
How can be used to avoid double taxation?
Double taxation relief
- Where a double tax treaty exists, relief may be given via the exemption method i.e. the income will be exempt in one of the countries
- When no treaty exists, unilateral relief will apply
When would you not need to do the long calc for DTR when there is multiple sources of foreign income
Don’t need to work through if the overseas rate (given in exam) is clearly lower than the UK rate
Or when the overseas income is charged at a single UK rate
How is CGT charged under the arising basis?
UK resident will have to pay CGT at the normal rates om their worldwide income for TY which the gains arise
Annual exempt amount is available
How is CGT charged under the remittance basis?
Non-domiciled Uk resident indiv pays UK capital gains tax on his/her UK gains in the TY in which the gains arise, but only pays UK tax on foreign gains when the proceeds are remitted in the UK
How is the rate of capital gains tax determined under the remittance basis?
Whether claimed or automatic, it is determined by the date of remittance of the proceeds
Are individuals entitled to the annual exempt amount under the remittance basis?
If it applies automatically then yes
But if it is claimed, then a non-domiciled UK resident indiv won’t be entitled to the annual exempt amount
What is the deemed cost for non-UK residents for sales of assets?
Only the gain for the period after 5 April 2015 is taxable, therefore use MV at that date as the deemed cost
Is PPR relief available for the disposal of UK residential property by non-UK resident indivs?
It is available as useful for
- The last 18 months of ownership (provided the property qualified as the indivs PPR at some time during the period of ownership)
- Periods when the indiv actually occupied the property as his/her main residence
But only the gain arising after 5 April 15 is taxable, only the period of ownership from 6 April 2016 will be considered for PPR purposes
As long as the property has been the indivs main residence at some point during ownership PPR can be applied, even if they don’t live in the property after 5 April 2015
How is PPR relief restricted for the disposal of UK residential property by a non-UK resident individual?
For periods of non-occupation (deemed occupation), PPR is only available if the indiv (or his spouse/civil partner) was
- Living in the UK for that TY
- Stayed in a UK property owned by the indiv for a total of at least 90 nights in the TY (pro-rate if property being disposed of was not owned for the full TY in question)
If neither of these rules are satisfied, the whole TY is treated as a period of non-occupation for PPR purposes
If the property is let out, letting relief will apply as usual
What tax is the disposal of UK non-residential property by non-UK resident individuals subject to?
From 6 April 19, non-UK resident indivs are subject to CGTon the disposal of UK non-resident property and/or assets which derive 75% of their value from UK property
Only the gain for the period after 5 April 19 is taxable, so use MV at that date as the deemed cost
Alt the indiv can elect to calc the gain/loss as normal
How is the gain calculated on disposal of UK non-residential property by non-UK resident individuals?
Only the gain for the period after 5 April 19 is taxable, so use MV at that date as the deemed cost
Alt the indiv can elect to calc the gain/loss as normal
How is DTR given on the sale of assets disposed abroad?
It is used to offset any double tax suffered on assets disposed on abroad
DTR given is lower of:
- overseas tax suffered on the ain
- UK tax on that gain
What must be done when there is both UK and overseas gains in a TY?
The AEA and basic rate band should always be set against UK gains in priority in priority of foreign gains to insure UK tax on foreign gain is maximised, so that maximum DTR can be claimed
