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The 2008/09 Tax Return and Three Key Decisions for the Non-Domiciled Individual to Make

The 2008/09 Tax Return and Three Key Decisions for the Non-Domiciled Individual to Make
The non-UK domiciled but UK resident individual is in the fortunate position of being subject to income and capital gains tax only on UK source income and UK situs assets. Income arising outside the UK and capital gains made on non-UK situs asset disposals fall outside the UK tax net unless and until such non-UK source monies are remitted to the UK (the so-called “remittance” basis).

 

However, the Finance Act 2008 made significant changes to the rules applicable to such individuals and as the filing dates for the 2008/09 tax return approach (i.e. 31st October 2009 re: “paper” returns and 31st January 2010 re: “on-line” filing returns) such individuals need to consider a number of matters for the first time.

Three key such matters are:

 

1. Have I been UK resident for at least 7 out of the 9 tax years prior to 2008/09;
2. Should I claim remittance basis treatment for 2008/09; and
3. Should I make the “one-off” capital loss election

1. Have I Been UK Resident for at Least 7 Out of the 9 Tax Years Prior to 2008/09?

Satisfaction of this condition is essentially “bad news”. It means that if remittance basis treatment is to be formally claimed for 2008/09 then a £30,000 remittance basis charge payment has to be made to HMRC for the privilege. This amount is over and above any tax which may be payable on remittances to the UK.
 
2. Should I Claim Remittance Basis Treatment for 2008/09?

If the above 7 out of 9 prior tax year condition is satisfied then unless a 40% taxpayer has at least £75,000 of non-UK source income or £166,666 of non-UK capital gains a claim for remittance basis treatment would seem inappropriate (unless other non-financial factors are important e.g. secrecy).

 

For those individuals with significantly larger offshore amounts, paying the £30,000 and claiming remittance basis treatment would seem the way to go.

 

If, on the other hand, the 7 out of 9 prior tax year condition is not satisfied, remittance basis treatment is possible on making a formal claim but no £30,000 payment is required. For such individuals claiming remittance basis treatment would appear to make sense.

 

An issue often overlooked when contemplating whether to claim or not is that if a claim for remittance basis treatment is not lodged certain offshore income and/or capital gains of say an offshore trust/company may fall to be subject to tax on the part of the settlor/shareholder, which would not have been the case if the remittance basis had been claimed.

 

3. Should I Make the “one-off” Capital Loss Election?

This is a one-off irrevocable election and must be made if in the tax year 2008/09 a claim for remittance basis treatment is made (whether or not any capital losses actually arise in 2008/09). By making the election offshore, capital losses may be offset against UK and offshore capital gains (albeit subject to certain rules) which was not possible pre 6th April 2008.

 

A failure to make the election means that, forever, offshore capital losses can never be utilised (assuming remittance basis treatment in the future).

 

As a very broad guide, no election should be made if offshore capital losses are never likely to be made but onshore (i.e. UK) capital losses are very likely; in all other circumstances an election is likely to prove the better option.

 

Conclusion

The biggest issues arise for those individuals who have been UK resident for at least 7 out of the 9 tax years immediately prior to 2008/09. Considerable thought needs to be given prior to completing the 2008/09 tax return (and supplementary pages).

 

For anyone other than the above it is, prima facie, likely that where the remittance basis has been utilised pre 2008/09 that it should continue albeit now requiring increased formalities to be complied with compared to the pre 6th April 2008 position.

 

Malcolm Finney