As announced in Budget 2011 and outlined in the June 2011 consultation document, a number of changes are to be made to the taxation of non domiciled individuals who claim the remittance basis. While some of these are to be welcomed, one of them may well tip the balance in deciding whether to leave the UK...

Baker Tilly analysis

The good news is that non UK domiciled individuals will, from 6 April 2012, be able to bring overseas income and/or gains to the UK tax free for the purposes of making commercial business investments in an unlisted trading company. Investments in quoted companies and limited liability partnerships will not qualify. When the qualifying investment is disposed of or otherwise  ceases to qualify (a ‘potentially chargeable event’), the individual will have 45 days to move the proceeds offshore or to reinvest in the same or another qualifying investment.

Less welcome is the increase in the remittance basis charge from £30,000 to £50,000 for those who have been UK resident in at least 12 of the previous 14 tax years.

In detail

• Increased remittance basis charge (RBC)

Once an individual has been a UK resident in at least 7 out of the previous 9 tax years, he has to pay £30,000 to be on the remittance basis; from 6 April 2012 this will increase to £50,000 if he was a UK resident in at least 12 of the previous 14 years. The RBC is not payable by anyone under 18 or if their unremitted overseas income and gains is less than £2,000 in the tax year.

• Encouraging business investment

From 6 April 2012, non domiciles will be able to remit overseas income and/or capital gains to the UK tax free for the purposes of making a qualifying investment. A claim for relief from UK tax on that income/gain has to be made. A qualifying investment means the issue of shares in a company or the making of a loan (secured or unsecured) to a company. There are two conditions for the investment to qualify for the exemption:

1. the company must be an eligible trading company; essentially an unlisted company carrying on a commercial trade – this can include the development and/or letting of commercial (but not residential) property.
2. no relevant person obtains, directly or indirectly, any related benefit nor expects to obtain such a benefit.

Those non domiciles who pay the RBC are required to nominate an amount of their overseas income/gains to which the RBC attaches in order for the RBC to be treated as a recognised tax charge for Double Tax Treaty purposes. A remittance of the nominated income/gains can cause unfavourable tax issues. The rules will be amended to allow up to £10 of nominated income/gains to be remitted to the UK without being taxed and without being subject to the unfavourable remittance identification rules.

• Taxation of assets remitted to and sold in the UK

Certain assets acquired using overseas income/gains and brought to the UK do not constitute taxable remittances (e.g. clothing, watches, jewellery, for personal use), unless the asset is sold in the UK. From 6 April 2012, where the proceeds of sale are taken out of the UK or used to make a qualifying investment within 45 days of receiving the proceeds, no UK tax liability will arise on the remittance.