As promised in the March 2011 Budget the Government announced a consultation in June 2011 seeking to change the remittance basis rules for non-domiciled UK resident tax payers. Remittance Basis Charge (RBC) applies when non-domiciled tax payers who: a) have been tax resident in the UK for at least seven out of the last nine years, b) have unremitted overseas income and gains exceeding £ 2,000 in a tax year and c) have opted to be taxed on a remittance basis. Currently this is £30,000 for a particular tax year. The Government now proposes to increase this to £50k for those who have been tax resident in the UK for at least 12 out of the last 14 years.
Commercial investments into the UK
In order that this change doesn’t put off high net-worth individuals the proposed rules now allow non-domiciled individuals to make commercial investments in to ‘qualifying businesses’ in the UK. Qualifying businesses have been defined to mean those carrying on any trading activity on a commercial basis (as generally understood), and those undertaking development or letting of commercial property. Trading activities or commercial property activities should constitute a ‘substantial proportion’ of the overall activities of the business. Businesses holding and letting residential and leasing of tangible moveable property or the provision of personal services (e.g. domestic staff) have been specifically excluded.
The investments will need to be made into a company (though not necessarily one incorporated in the UK) and such investments will not be deemed to be a remittance and therefore no remittance basis charge will apply. Investments could be made in to the share capital or could even be a loan without there being any cap on the amount that can be invested. As there is no restriction that the tax payer or his/her family members can’t have involvement in the investee company the rules look attractive for many non-domiciled tax payers with substantial overseas income and gains. Even commercial remuneration can also be drawn but restrictions would apply where artificial payments disguised as commercial payments are taken out.
The tax payer will need to disclose the amount invested and the name of the company in to which the investment is made, in the tax return, thereby giving HMRC further information as to the non-UK domiciled person’s tax affairs.
Foreign currency bank accounts
Currently balances held in foreign currency bank accounts are chargeable assets for the purpose of capital gains tax. As a result foreign exchange gains made upon withdrawal of funds from such accounts would attract capital gains tax. The proposal includes taking the foreign currency bank accounts outside the definition of chargeable assets.
