Individual overseas issues

Question 1

CGT and Income tax for UK residents

Answer 1

UK income tax and gain tax on WORLDWIDE income and gains

Question 2

CGT and Income tax for Non UK residents

Answer 2

Income tax on UK incomes only (EG. rental, dividend)

Special rules for CGT

Question 3

income and gains earned in UK are taxed on what basis?

Answer 3

always taxed on arising basis
means jis year mein kamaya, ussi year mein tax lagega

Question 4

overseas income and gains are taxed on what basis?

Answer 4

can be taxed on either :

-arising basis (in yr in which earned)
-remmitance basis (when brought in UK)

however this not up to the individual, some rules apply

Question 5

what does remittance mean

Answer 5

when overseas income and gain are brought into UK in form:

-cash or bank transfer
-asset which was purchased by those earnings brought to UK
-UK loan is repaid via those earnings

Question 6

what transactions are not remmitances?

Answer 6

asset brought to UK for:
-personal use
-repair purpose
-exhibition
-<1000 pounds

Question 7

from taxpayer perspective, is remmitance basis more favorable or arising basis?

Answer 7

remmitance basis is more favorable
as tax gets delayed

Question 8

when does tax dep allow remmitance basis?

Answer 8

only allowed in two cases:

-automatic remittance basis
-opting remittance basis

Question 9

what is automatic remittance basis, it’s conditions, and is it compulsory?

Answer 9

no election needed

this is permitted when:
1-unremitted amount is less than 2000 pounds (jo paisa bahar para hua hai is less than 2000 pounds)
2-remittance is restricted due to any overseas law (money is locked in that country due to immigration etc)

we can opt out of automatic remmitance basis, its not compulsory

Question 10

what is opting remmitance basis, who can opt? what are the penalties?

Answer 10

if auto N/A person can opt.
It can only be opted if person is UK resident but non UK domicile holder.

following penalties will apply:
-personal allowance withdrawn

-annual exemption withdrawn

-no allowed expense for overseas traveling and subsistence (food,rent etc) (travel for business/work is usually an allowed expense for self employment ppl like visiting clients etc)

-overseas dividend income will be taxed at N/S income tax rates

-Remmitance base charge may be payable

Question 11

what is remmitance base charge?

Answer 11

it is payable if taxpayer age is older than 18 yrs

AND
-resident for last 7 out of 9 years: £30,000

-resident for last 12 out of 14 years: £60,000

this will be assessed yearly

Question 12

impact on CGT if remmitance base charge gets applied

Answer 12

Rate of CGT becomes higher rate (20% and 28%)

Question 13

if someone is UK resident + domicile holder, how will UK and overseas income and gains be taxed?

Answer 13

UK income and gains: Arising basis

Non UK income and gains:
-Arising basis
-Automatic remittance basis may be applied
-Opting remittance basis not allowed

Question 14

if someone is UK resident + Non UK domicile holder, how will UK and overseas income and gains be taxed?

Answer 14

UK income and gains:
Arising basis

Overseas income and gains:
-Arising basis
-Opting basis is allowed
or Automatic remmitance basis may be applied

Question 15

If someone is non UK resident, non domicile holder?

Answer 15

UK earnings: Arising basis
(eg. remote workers, property owners earning rentals, interest income etc)

Overseas income and gains: Exempt
(eg. if i go to UK i will not be charged)

Question 16

3 steps of determining UK residency

Answer 16

1) Are you automatically non UK resident?
2) Are you automatically UK resident?
3) Consider UK ties and days in UK

Question 17

Step 1. A person automatically becomes non UK resident if?

Answer 17

3 situations:
-a person who has an overseas job, and lived in UK less than 91 days
workdays in UK should be less than 31 days
-no overseas job, lived in UK less than 46 days
-has been a UK resident in any of the past 3 fiscal years, lived in UK less than 16 days

yes= NON UK RESIDENT
No= move to step 2

Question 18

Step 2: A person becomes automatically UK resident if

Answer 18

1- lived in UK for 183 days in the fiscal year
2- worked 365 days continuously in UK, such that some days lie in current yax year
3- lived 30 days in UK such that only home is in UK

yes= UK resident
No= move to step 3

Question 19

step 3- consider UK ties and days in UK

Answer 19

5 ties which will be evaluated:
-close family member is resident in UK (spouse or children)
-worked atleast 40 days in UK
-lived atleast 90 days in UK in any of previous 2 fiscal years
-have an accommodation in UK available (own or close relatives’) for atleast 91 days, in which atleast one night is spent
-comparative day tie: must greater comparative days in UK as compared to other countries. not relevant for those who are not previously resident.(resident in any past 3 previous years)

Question 20

what is split year treatment

Answer 20

usually residency status is for whole year

this concept says that for part of the year, you are resident and part non resident

circumstances when residency status is changed during year:
-permanent job in UK or overseas , residency status gets changed immediately

applies automatically if conditions are met, no election needed, and cant choose to disapply

Question 21

split year treatment conditions for people leaving UK

Answer 21

-full time job overseas for atleast one complete tax year
-to live with partner with overseas job for atleast one complete tax year
-leaves UK, ceases to have UK home, spends minimal time (less than 16 days) in UK

Question 22

split year treatment conditions for people coming to UK

Answer 22

-buys a home, not sufficient ties before acquiring UK home
-full time job for atleast one tax year, not sufficient ties before coming to UK
-partner gets full time job in UK
-returns to UK after leaving full time job overseas, or partner leaves job overseas

Question 23

3 types of UK domicile

Answer 23

1- domicile by origin: born in UK
2- domicile by dependecy: due to domicile status of parents
3- domicile by choice: if emigrates to UK

there is also deemed domicile status

Question 24

2 cases in which person can be deemed domicile for INCOME TAX AND CGT

Answer 24

1) Long term resident rule
such that:
-UK resident for atleast 15 out of last 20 years
-resident for atleast 1 year after 6 april 2017

2) Born in UK rule:
-formerly resident of UK (left domicile)
-born in UK
-got domicile by origin
-resident in current fiscal year only

Question 25

Special CGT rules:

Do non UK residents have to pay UK CGT?

Answer 25

general rule:
No CGT on UK gains or overseas gains. (non UK resident does have to pay income tax on UK income)

however CGT is payable in the following 3 situations:
TUTS
T – Trade asset disposal (used in a permanent UK establishment)eg. john moved abroad, becomes non resident, but still owns the restaurant, sells it while non resident, but assets were used in trade)

U – UK property disposal (residential or non-residential)

T – Temporary absence rules will apply

S– shares or painting are not taxed

Question 26

UK property disposal rules

Answer 26

Residential property:
-CGT must be paid if disposal is after 6th april 2015

NON residential property:
-CGT must be paid if disposal is after 6th april 2019.
-CGT will be lower of: 1) DP less original cost, 2) DP less MV on 6th April 2019. (only applies if property was acquired before this date)

Question 26

what are temporary absent rules?

Answer 26

-This only applies on assets purchased during resident status and being disposed during non resident period (to avoid paying tax)
-CHT will be paid when individual returns to UK after temporary absence period

-During this period both UK and overseas gains will be taxable

A person is considered temporarily absent if:
1) Resident for atleast 4 out last 7 years
2) Regains UK residency status in the following next 5 years

Question 27

as asset purchased in non UK residency period and sold in non UK residency period as well

Answer 27

not subject to CGT

Question 28

Do non UK residents get rollover relief?

Answer 28

Yes same as normal. on disposal and reinvestment of business assets

Question 29

Do non UK residents get gift relief?

Answer 29

Yes on gift of qualifying UK properties (if GR conditions are met)

Question 30

do NON UK residents get loss relief?

Answer 30

yes, same as normal, loss can be offset against future gains

Question 31

what is double taxation?

Answer 31

a UK resident has to pay tax on worldwide income and gains
this may lead to double tax situation, as this amount may already be taxed overseas

a double tax treaty may exist between UK and foreign country, and so one of the country will waive tax according to the treaty

normally, country in which person is resident is allowed to take tax

Question 32

what if a double tax treaty does not exist?

Answer 32

In this case double taxation relief is given at lower of:
-UK tax on foreign income
-overseas tax

Question 32

how to maximise Double taxation relief?

Answer 32

UK tax on foreign income has to be maximised

-dont use losses and personal allowance on overseas income first
-tax overseas income last so higher rate band is used, so tax is higher

Question 33

if examiner is silent overseas income is gross or net

Answer 33

net

Question 34

if there are multiple overseas income in which order is DTR calculated

Answer 34

DTR is first calculated on foreign income with highest overseas tax rate

Question 35

DTR working

Answer 35

first compute tax normally

then take income with higher overseas rate first, then calculate DTR. DTR will be deducted from tax payable

wo overseas income jiska overseas rate zyada hai, usse UK mein bhi zyada rate pe tax karwyen, take DTR maximise ho sakay