Overseas aspects of income tax and capital gains tax

Question 1

Residence

Answer 1

A taxpayer’s residence and domicile have important consequences for their UK tax liability. A statutory residence test (details not needed) applies which assesses whether an individual is a UK resident.

Question 2

Domicile

Answer 2

Unique to UK law and broadly refers to the place where a person has their permanent home.

It is not the same as nationality or residence.

It is possible to have a domicile in a country you have never visited.

Only one domicile is possible at a time.

A domicile outside of the UK can be tax advantageous as the remittance basis may then apply.

Question 3

Domicile of origin

Answer 3

Acquired at birth and is the same as your father, unless your parents were unmarried at birth in which case it is your mother’s

Question 4

Domicile of dependency

Answer 4

Based on the person on whom you were dependant until you are 16

Question 5

Domicile of choice

Answer 5

A person over 16 can acquire a domicile of choice if she can show that she has severed ties with her old country of domicile and has the intention of remaining in the new country permanently.

A person can acquire a UK ‘deemed domicile’. A person who is non-UK domiciled under general law is treated as domiciled in the UK for income and capital gains tax purposes if either of the following conditions are met:

• the individual has been resident in the UK for at least 15 of the previous 20 tax years.(only if UK resident in that tax year or have been resident in any tax year from 17/18 onwards)
• the individual was born in the UK had a domicile of origin in the UK and is UK resident in the tax year

Question 6

Employment Income

Answer 6

Resident and domiciled - always arising basis

Resident but not domiciled - arising basis on UK and foreign income unless duties WHOLLY performed outside the UK in which case remittance basis (if employer not resident) or amount earned

Not resident - taxable only on duties performed in the UK

Question 7

Tax free benefits for employees who work abroad

Answer 7

• cost of board and lodgings paid by the employer
• return trips hoe paid by the employer
• for absences of 60 days or more travelling expenses for 2 visits for a spouse and minor child

Question 8

Other income

Answer 8

All UK income on arising basis (regardless of residence / domicile status)

Resident and domiciled - overseas income also on arising basis
Resident but not domiciled - overseas income possible remittance basis
Non resident - overseas income not taxable in UK

Question 9

The remittance basis - available to….

Answer 9

individuals who are resident in the UK but not domiciled

Question 10

Remittance basis - consequences

Answer 10

Consequences:
- lose their entitlement to UK personal allowances and the CGT annual exempt amount
- may have to pay a remittance basis charge of
30,000 per annum if resident for 7 out of last 9 years
60,000 per annum if resident for 12 out of last 14 years
90,000 per annum if resident for 17 out of last 20 years

Question 11

Remittance basis - automatic or need to claim?

Answer 11

Individuals must usually claim the remittance basis and become a remittance basis user (RBU)

Remittance basis applies automatically where unremitted overseas income and gains less than £2,000

Question 12

Remittance basis - foreign investment income

Answer 12

ie interest and dividends will be taxed as non savings income where the remittance basis applies. Therefore while the personal savings allowance and dividend allowances can be used against UK savings and dividend income they cannot be used against foreign investment income as this is taxed as non savings income.

Question 13

Personal allowances & residence

Answer 13

Personal allowances may only be claimed by non UK residents if they are:

• citizens of the EEA
• resident in the Isle of Man or Channel Islands
• current or former crown servants and their widows or widowers
• resident in certain territories with which the UK has a double tax agteement
• former residents who have left the UK for health reasons

Question 14

Double taxation relief - where a double tax treaty exists…

Answer 14

relief may be given via the exemption method.

Question 15

Double taxation relief - where no double tax treaty exists…

Answer 15

Unilateral / credit relief

• overseas income is included in the UK income tax computation gross of overseas taxes suffered
• DTR on a source by source basis is given as the lower of
  overseas tax suffered
  UK tax on the overseas income (ie the excess tax over the UK income only)

Question 16

Overseas income - method

Answer 16

Remove the different sources of overseas income one at a time, starting with the income which has suffered the highest rate of overseas tax

Question 17

Overseas elements of CGT

Answer 17

Resident in the UK? - if no usually no CGT

Dom in the UK?
if yes CGT on worldwide assets
If no either CGT on worldwide assets OR CGT on UK assets + overseas gains remitted

Question 18

Disposal of UK residential property by non UK residents

Answer 18

From 6 April 2015 non UK resident individuals are subject to CGT on disposals of UK residential property

The taxable gain is that part of the gain arising after 5 April 2015 based on the market value at that date

Alternatively the taxpayer can elect for the total gain over the whole period of ownership to be time apportioned and only post 5 April 2015 gain charged to tax

PPR available for usual periods when individual occupied property. However as only the gain arising after 2015 is taxable, only that period of ownership considered for PPR purposes

Question 19

The 90 day rule

Answer 19

PPR relief is only available in a tax year if the taxpayer was living in the UK in the tax year or stayed overnight at the property at least 90 times in the tax year (the 90 day rule)

Where the 90 day rule is not met PPR is not available for any periods of occupation during that tax year

If the property was owned for only part of a tax year the 90 days are time apportioned

Provided the property qualified for PPR at some time during the period of ownership the last 18 months of ownership will, as for UK residents, be covered by PPR