Overseas aspects of tax

Question 1

What does the term domicile mean – and why is this relevant for income tax purposes in the UK?

Answer 1

Domicile is the country where an individual has his or her main home.
An individual can only have one domicile at a time.
Usually acquired on birth or can be the domicile of the father/parent and not necessarily the country of birth.
Relevance – domicile is relevant to your tax status in conjunction with residency – ability for example to claim the remittance basis

If a UK resident is not UK domiciled, the remittance basis may apply so that foreign income is taxed only to the extent that the income is remitted to the UK. Similarly, gains arising from disposals of assets situated overseas may be taxed on the remittance basis. Also, an individual who is not domiciled in the UK is liable to inheritance tax only in relation to property which is situated in the UK.

Question 2

If an individual is resident for UK tax purposes, how does their domicile affect their ability to pay tax?

Answer 2

If a UK resident is not UK domiciled, the remittance basis may apply so that foreign income is taxed only to the extent that the income is remitted to the UK.

Question 3

What is double tax relief and who can claim this?

Answer 3

The overseas income of a UK resident will be taxed in the UK and might also be taxed in the country in which the income arises. (Similarly, the UK income of a non-resident will be taxed in the UK and might also be taxed overseas).
 To avoid this, the UK has ”double taxation treaties” with many overseas countries where certain forms of income are exempt from income tax in the country of origin (or charged at a reduced rate).

Question 4

What is the remittance basis?

Answer 4

• The overseas income of a UK resident who is not domiciled in the
  UK (a so called “non dom”) may be taxed only to the extent the
  income or gains are brought directly into or remitted to the UK
• This is called the remittance basis.
• A claim for the remittance basis must usually must be made but is
  assumed to apply automatically to those whose unremitted
  overseas income is less than £2,000 in the year concerned

Question 5

why has the remittance basis been heavily criticised?

Answer 5

• In the past - the remittance basis for UK residents who are also non-doms has provided an enormous tax advantage
• Enabled wealthy individuals to shelter overseas income from taxation – for example if wealth/savings and investment income are moved
  overseas – often enveloped within a tax haven – then little or no tax is due unless the income is actually
  brought into the UK.
• Also – reliefs have been available such that remitted income will not incur a tax liability if this is used to make a commercial investment in a qualifying
  business.
• Considered a privilege for the wealthy elite ….

Question 6

What changes were made to the remittance basis?

Answer 6

• For those claiming remittance basis – a remittance basis charge
  (RBC) may apply as follows:
  1. New non doms – no remittance basis charge for first 6 years of residency.
  2. A charge of £30,000 applies to non UK domiciled adults resident in the UK who have been resident for at least 7 of the previous 9 years.
  3. This becomes a higher charge of £60,000 where an adult has been resident for 12 out of the last 14 years.
• “Non doms” resident in the UK who claim the remittance basis lose tax free allowances for income tax/capital gains tax eg the personal allowance – personal savings allowances unless
  remitted income is below £2,000 (but the rules here in practice are very complex ).
• Individuals who have resident in the UK for a given tax year and have been UK resident for at least 15 of the past 20 years now deemed to be UK domiciled – Remittance Basis claim not
  available

these changes have helped to remove permanent non-dom status. The rules however still attract criticism but also help those who are genuinely the uk for a short period of time and also the de minimis rule is helpful in making the uk tax rules less compliacted here.

Question 7

NON-DOM STATUS – IS CURRENTLY MUCH IN THE NEWS – WHY IS THIS?

Answer 7

Recent controversy - following media revelations that Rishi Sunak’s wife claims the remittance
basis – possibly saving UK tax of around £20million