Expatriates: New rules for non-UK domiciled and not ordinarily resident taxpayers

Posted on 7th January, 2009

Estimated reading time 3 minutes

Under the UK tax system those who have a non-UK domicile are entitled to use the remittance basis of taxation whereby only income and gains which they “remit” to the UK is taxable here.

So too the remittance basis applies to those individuals who are not ordinarily resident in the UK, but only in relation to foreign income.

(Broadly, “domicile” is a term referring to one’s “homeland” or “permanent home”.  There are various tests to establish one’s domicile.  Domicile is generally inherited from one’s father at birth but can change in certain circumstances.  “Remit” means to send or use or benefit from, in the widest sense.  The concept of “ordinary residence” is akin to being in the UK year after year.  For example, one will be ordinarily resident if one comes to the UK voluntarily for a settled purpose for a period of three years or more, although other factors may also indicate ordinary residence).

Annual claims

From the 2008/09 tax year such non-UK domiciled and not ordinarily resident individuals have to make an annual claim in order to benefit from the remittance basis of taxation.

Loss of tax exemptions

If the remittance basis is claimed then if the individual has unremitted foreign income or gains of £2,000 or more arising in the relevant tax year he or she will lose their entitlement to UK personal tax allowances and the annual exempt amount for capital gains tax (currently £10,100).   However, this does not apply to EEA nationals or individuals who are dual resident in the UK and certain countries with which the UK has a double tax treaty which happen to contain provisions which enable them to continue to claim the tax allowances.

Annual charge of £30,000

Where the remittance basis is claimed by an adult individual who has £2,000 or more of unremitted foreign income or gains in the current tax year and who has been resident in the UK in the current year and for 7 or more of the previous 9 years then a £30,000 tax charge is levied.  Of course, there is no compulsion for an individual to claim the remittance basis of taxation in any year if they are otherwise happy to be subject to UK tax on their worldwide income and gains.

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