Add to PDF BrochureView PDF BrochureBookmark PagePrint PageA A A

Residence and domicile rules – further changes

Following the publication of the draft legislation on 18 January 2008 dealing with the proposed changes to the residence and domicile taxation rules, Dave Hartnett, Acting Head of HMRC, published a letter on 12 February clarifying what had been ‘the Government’s original intention’. 

The letter addressed the following four issues that have been raised during the Government’s consultation on the draft legislation which will close on 28 February:

                     (i) Those using the remittance basis will not be required to make any additional disclosures about their income and gains arising abroad. So long as they declare their remittances to the UK and pay UK tax on them, they will not be required to disclose information on the sources of the remittances;

                     (ii) There will be no retrospection in the treatment of trusts and the tax changes will not apply to gains accrued or realised prior to the changes coming into effect;

                     (iii) Money brought into the UK to pay the £30,000 charge will not itself be taxable; and

                     (iv) It will continue to be possible to bring art works into the UK for public display without incurring a charge to tax

There has been much concern about the obligation on UK resident settlors to disclose all overseas settlements which they created since 1991. The letter suggests that if remittance basis is claimed the details of unremitted income and gains need not be disclosed and that it will not require information as to the source of remittance on which UK tax is paid. However, the practical implications of this statement remain to be seen.  

The letter seeks to assure that it was never the intention of the Government to tax retrospectively gains of offshore trusts accrued or realised before the proposed changes take effect, as implied in the draft legislation.

The letter suggests that foreign income or gains used to pay the additional £30,000 charge will not be further taxed provided that the payment is made direct to HMRC. So, if the amount is first paid into the taxpayer’s UK bank account, this will be considered a taxable remittance. In addition, the letter states that ‘we will continue to discuss with the US authorities how the £30,000 charge can become creditable against the US tax.’

The Government denies the allegations that it has changed its heart and states that the above changes ‘have always been its intention’. 

Additionally, we have been recently informed by a senior source within HMRC’s Share Schemes Unit that the Government is likely to introduce changes to the legislation which will affect share options and/or share benefits granted to employees and managers who were resident but not ordinarily resident in the UK.  Under the current legislation, the tax treatment concerning share options and/or shares which are granted to such individuals is generally more favourable than those granted to resident and ordinarily resident individuals.  The new legislation will address these differences and effectively put all UK resident tax payers on the same footing.

For PDF version of this focus sheet click here