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Taxation of Non UK Domiciled Persons

Changes to the taxation of Non domiciled persons

Remittance Basis Charge

From the tax year 2012-13 a higher level annual remittance basis charge of £50,000 applies if you:

  • Are not domiciled in the UK
  • Are UK resident in a tax year
  • Make a claim to use the remittance basis in 2012-13 or in a later tax year; and
  • Have been resident in the UK in at least 12 of the 14 tax years before the year in which you make the claim.

The current £30,000 remittance basis charge remains unchanged if you have been UK resident in at least seven of the previous nine tax years.  The amount of the charge will be £30,000 or £50,000 depending on the length of your UK residence.

Tax Free Remittances for Investment in UK Business

To encourage investment in UK businesses, certain remittances made for this purpose (and subject to specific conditions) on or after 6 April 2012 will not be treated as a taxable remittance, subject to the individual claiming the remittance basis for the year concerned.

Inheritance Tax

The transfer of assets between spouses does not give rise to an IHT charge.  However where there is a transfer of an asset from a UK domiciled spouse to a non UK domiciled spouse there is cap on the amount which can be transferred without giving rise to an IHT charge (£55,000).

UK domiciled individuals are chargeable to IHT on their worldwide assets, whereas non domiciled individuals are only liable to UK IHT on their UK assets.  The cap effectively prevents assets being taken outside the scope of IHT

Legislation has been introduced in Finance Bill 2013 to reform the IHT treatment of transfers between UK-domiciled individuals and their non-UK domiciled spouse or civil partners in two ways.

Rather than a cap of £55,000 on the transfer of assets between a UK domiciled to a non domiciled person – this cap will increase to the current nil rate band of £325,000 as of 6 April 2013.

Persons who have been resident in the UK for 17 out of the previous 20 tax years are deemed UK domicile for inheritance tax purposes meaning their worldwide assets come within the UK HT charge.  For those who are not yet deemed domicile, under a new election regime, individuals domiciled other than in the UK and who are married or in a civil partnership with a UK domiciled person will be able to elect to be treated as UK-domiciled for IHT purposes.

Where an individual chooses not to elect for UK domicile treatment their overseas assets would, as now, be exempt from IHT but any transfers from their spouse or civil partner would be subject to the increased cap. Individuals who choose to make an election would benefit from uncapped IHT-exempt transfers from their spouse or civil partner, but subsequent disposals by them would be liable to IHT (subject to their own nil-rate band), irrespective of the location of the assets.

Elections will be irrevocable while the electing individual continues to remain resident in the UK. An election will cease to have effect if the electing person is resident outside the UK for more than three full consecutive tax years.

Sale of Investments 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.

Did you Know?

  • Fact Seven

    Thanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
  • Fact Six

    The IRS is actively looking for non compliant US persons.
  • Fact Five

    It takes an average of 16 hours to do IRS Form 1040.
  • Fact Four

    There are over 500 IRS tax forms.
  • Fact Three

    Since 1916, illegal income has been taxable.
  • Fact Two

    US persons must file tax
    returns no matter where they live and work.
  • Text One

    7 million Americans abroad
    only 500,000 compliant