Finance Bill 2012 has been published
Remitting Funds to the UK for Business Investment
Finance Bill 2012 has been published and includes the proposed legislation on Business Investment Relief for remitted foreign income and gains. The initiative enables UK resident non domiciled persons to remit overseas income and gains to the UK tax-free in respect of certain ‘qualifying investments’ in the UK. There is no constraint on the amount that can be brought to the UK to make investment in trading and commercial property companies via shares, securities or loans. A qualifying investment is an investment in unlisted companies, or those listed on exchange regulated markets, which carry out (or will carry out within 2 years) trading activity on a commercial basis or undertake the development or letting of property.
Below is a summary of the key points of the new incentive:
- In order to attract the relief, a qualifying investment must be made within 45 days of the money or property being brought to the UK.
- Investments in partnerships and LLP’s are currently excluded from this incentive.
- Holding and letting UK residential property is excluded, except where that property is used for commercial purposes.
- There is no restriction on individuals investing in companies by which they or their family are employed, provided they only draw commercial remuneration from the company.
- Amounts received on the sale of shares or securities (subsequent to the investment where the relief is applied) must be reinvested or removed from the UK within 45 days to avoid a remittance of the original funds being triggered.
- In order to benefit from the relief, an individual will need to make a claim on their tax return by 31 January following the tax year in which the qualifying investment has been made.
Business Investment Relief provides non UK domiciles with an opportunity to use finance offshore to invest in the UK without triggering a ‘taxable remittance’.
An Increase in the Remittance Basis Charge
The annual charge is payable by all individuals who claim the Remittance Basis and have been UK resident in at least 7 out of the last 9 tax years, and the charge stands at £30,000. Payment of the tax means that foreign income and capital gains of the relevant tax year do not fall within the charge to UK tax unless or until they are remitted to the UK.
From 6 April 2012 the remittance basis charge has been increased to £50,000 for individuals who have been resident in the UK for at least 12 of the previous 14 tax years. For those who use the remittance basis and pay the annual charge, it is worth considering whether it is worthwhile to continue doing so bearing in mind the increased annual charge.
Funds brought from overseas accounts to pay the charge are not treated as a remittance provided they are paid directly to HMRC.
From 6 April 2012, individuals can remit up to £10 of overseas income or gains which they have nominated for the purposes of the annual remittance basis charge without being taxed on that remittance and without becoming subject to the unfavourable and complex identification rules following remittances of nominated income.
Taxation of Assets Sold in the UK
Where assets are purchased overseas using foreign income and gains and subsequently disposed of in the UK, a remittance is triggered and a charge to UK tax will arise (there are limited exemptions to this rule). The UK government has acknowledged that this has discouraged individuals from selling works of art in the UK and therefore from 6 April 2012, non UK domiciled individuals can bring works of art into the UK for the purpose of selling it, without triggering a taxable remittance. The conditions for the relief are:
- The proceeds of sale must be taken offshore within 45 days of proceeds being paid.
- The sale must be on arms length terms and cannot be made to a person who is ‘connected’ with the seller (spouse, lineal descendent, or a company in which the seller has an interest).
- The seller must not retain an interest in the asset once sold.
- Payment for sale must be made to the seller within 95 days of the sale taking place.
Statutory Residence Test (SRT)
The Statutory Residence Test proposed by HMRC has been postponed and will be included in Finance Bill 2013. The reason for the postponement was the lack of clarity surrounding ordinary residence and how this was to feature under the new rules. It has been announced in the 2012 Budget that the ordinary residence test will be abolished from 6 April 2013 to coincide with the new SRT. The concept of a statutory test for residents is generally welcomed as this will give a degree of certainty to a large number of taxpayers both arriving and leaving the UK.