RESIDENCE AND DOMICILE

The changes take effect from 6 April 2008 and are likely to affect you significantly if you are:

Resident but Not Ordinarily Resident (R/NOR), or
Resident and Ordinarily Resident but not domiciled in the UK (R/OR/ND), or
Not UK Resident (NR) and visit the UK frequently but under 91 days a year.

In summary, the changes will:

From 6 April 2008, take away your entitlement to a personal tax-free allowance (currently from £5,225) if you are not domiciled or not ordinarily resident in the UK and wish to continue using the remittance basis to exclude overseas income and gains from UK taxation.

This will apply, for example, if you are R/NOR and claim relief for overseas workdays, or are not domiciled in the UK and currently exclude your overseas investment income from UK tax because it is not remitted to the UK. This change starts on 6 April 2008, even if you have only just come to the UK.

Cost you an additional tax charge of £30,000 a year if you want to use the remittance basis to exclude your overseas income and gains from UK taxation.

This charge will start once you have been tax resident in the UK for 7 tax years. Years of residence before 6 April 2008 will count towards the 7 years, so the charge may affect you as early as 6 April 2008. It has been suggested that the charge may be higher than £30,000 after 10 years of residence.

Unless your unremitted overseas income is less than a proposed de minimis figure of £1,000, the extra £30,000 tax charge can only be avoided by reporting your worldwide income and gains on your UK tax return. You would probably only choose to accept the £30,000 tax charge if the extra UK tax calculated on your actual overseas income and gains was greater than this.

Include days of arrival and departure when working out how many days you have spent in the UK. Such days are currently ignored and this change will particularly affect those individuals who are not UK resident but make frequent visits to the UK during the year and endeavor to keep under the 91 day limit.

Tighten up the remittance rules and, for example, stop the facility for remitting overseas investment income tax-free by closing and re-opening overseas bank accounts.

Contact our colleagues at BritishTaxpayers for Help if you think you are affected.

http://www.britishtaxpayers.com/expatriates-tax.php

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