Background Note
239.The remittance basis is an alternative basis of taxation which applies to foreign income and capital gains. It is available to UK resident individuals who are not domiciled and/or not ordinarily resident in the UK. Such individuals have the option of electing to be taxed on the remittance basis and those who do so are liable to UK tax on all their income and capital gains which arise in the UK, but only liable to UK tax on their foreign income and capital gains to the extent that they are remitted to the UK.
240.The remittance basis rules were revised in Finance Act 2008. The main revisions were the introduction of an annual Remittance Basis Charge of £30,000 for individuals who had been resident in the UK for at least seven out of the preceding nine years and who wished to claim the remittance basis and a series of provisions to address a number of loopholes and anomalies in the previous remittance basis regime.
241.Further minor changes to the remittance basis were introduced in the Finance Acts 2009, 2010 and 2011.
242.At Budget 2011, the Government announced a package of measures to reform the remittance basis with the objective of ensuring that non-domiciled individuals pay a fair tax contribution and of encouraging them to bring their foreign income and gains to the UK to invest in businesses. It also announced a number of technical simplifications to some aspects of the current rules to reduce undue administrative burdens.
243.On 17 June 2011, the Government published a consultation document, ‘Reform of the taxation of non-domiciled individuals: a consultation’ which sought views on the detailed design of the changes announced in the Budget. Consultation ended on 9 September 2011.
244.The main features of the proposed reforms were:
the introduction of a higher annual charge of £50,000 payable by individuals who claim the remittance basis and who have been resident in the UK in at least 12 of the 14 tax years prior to the year of claim;
a new relief to encourage investment by allowing remittance basis taxpayers to remit their foreign income and gains to the UK tax-free where they are used for the purpose of making a commercial investment in a company; and
a number of technical changes to simplify some aspects of the current remittance basis rules.
245.The Government published its response to the representations made during the consultation on 6 December 2011.
246.Following further consultation, a number of changes were made to the draft legislation, including a new exemption for CGT on sales of exempt property and a new provision to allow individuals taking advantage of the investment relief to retain an amount of the proceeds from the disposal of an investment in the UK to meet any CGT liability. A series of further minor changes were made to the legislation in response to representations made during consultation. The consultation period ended on 10 February 2012.
Increased Remittance Basis Charge
247.Under section 809H ITA, individuals who have been UK resident in at least seven of the nine preceding tax years are required to pay an annual charge of £30,000 to access the remittance basis.
248.Part 1 of the Schedule introduces an increased annual charge of £50,000 payable by individuals who have been UK resident in at least 12 of the preceding 14 tax years. Those individuals who have been UK resident in at least seven of the nine preceding tax years and who claim the remittance basis will still be required to pay the annual charge of £30,000.
Remittance for Investment Purposes
249.Under the existing rules, remittance basis taxpayers are liable to UK tax on any foreign income or capital gains which they remit to the UK, irrespective of the purpose for which those income and gains are used. This can discourage such individuals from making commercial investments in the UK. Part 2 of the Schedule seeks to remove this disincentive by allowing remittance basis taxpayers to bring their overseas income and gains to the UK without becoming liable to tax provided they are brought to the UK for the purpose of making a commercial investment in a qualifying company.
250.To prevent abuse, there are a number of conditions to prevent an investor from using the relief as a means of enjoying their overseas income and gains in the UK tax-free.
Sales of Exempt Property
251.Sections 809X to 809Z6 ITA contain certain exceptions to the remittance basis which permit an individual to bring property purchased out of unremitted foreign income and gains to the UK without being taxed on the remittance of those income and gains. These exceptions are where the property is:
a work of art, collectors’ item or antique brought to the UK for the purposes of public display at an approved establishment;
an item of clothing, footwear, jewellery or watch for personal use;
brought to the UK for the purposes of repair or restoration;
imported into the UK temporarily for a period of no more than 275 days; or
worth less than £1,000.
252.Such property is defined as ‘exempt property’ in section 809X ITA. Under section 809Y ITA, these exceptions cease to be available where the property is sold or otherwise converted into money whilst in the UK. This can be a disincentive to remittance basis taxpayers who wish to sell such property in the UK. The changes introduced by Part 3 of the Schedule seek to remove this disincentive by allowing exempt property to be sold in the UK without a tax liability arising.
253.In order to qualify for the exemption, the entire sale proceeds must be paid to the seller by the first anniversary of the 5 January following the tax year in which the sale takes place. This is in order to ensure that the exemptions can operate within the Self Assessment system.
254.This part of the Schedule also introduces a new rule which treats gains arising on sales of exempt property as foreign chargeable gains where the conditions are met for the exemption from the tax on the remittance of exempt property.
Nominated Income
255.Under section 809H ITA, individuals who have been UK resident in at least seven of the nine preceding tax years are required to pay an annual charge of £30,000 to access the remittance basis. Part 1 of the Schedule introduces a further annual charge of £50,000 for individuals who have been UK resident in at least 12 of the preceding 14 tax years.
256.Under section 809C, such individuals are required to nominate an amount of their foreign income or gains for each tax year in which they are liable to pay the annual remittance basis charge. This nominated amount forms the basis for calculating the annual charge.
257.Where such individuals remit the foreign income and gains which they have nominated under section 809C before any other of their foreign income and gains, the order in which those income and gains are remitted is determined by rules in sections 809I and 809J.
258.The amendments made by part 4 of the Schedule allow such individuals to remit up to £10 of their nominated income or gains each year without having to take steps to ensure that no part of that nominated amount is remitted to the UK before other foreign income or gains.