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The measure

Finance Act 2008 introduced significant changes to the taxation of non domiciles. The Government gave an undertaking that HM Treasury and HMRC would consult with external stakeholders to ensure that the legislation operates as intended. As a result of these consultations a number of amendments are proposed.

The amendments include a number of relaxations. Currently some items purchased from foreign investment income and foreign trading income can be brought into the UK without triggering a remittance. These include clothing, footwear, jewellery and watches brought into the UK for personal use, property brought into the UK on a temporary basis, property brought into the UK for repair and items where less than £1,000 of foreign income has been used to acquire them. These exemptions have been extended to include such property purchased using foreign employment income and the proceeds of foreign capital gains. This is very welcome as there is no longer any need to consider the source of the funds used to purchase these items. This applies from 6 April 2008

However, the rules are also being tightened to ensure that a just and reasonable proportion of income or gains are treated as remitted where an item that is part of a set, purchased out of overseas income or gains, is brought into the UK. This change takes effect from 22 April 2009.

A number of relaxations to the requirement to file a tax return to claim the remittance basis have been introduced. An exemption is intended to save individuals, such a working spouses of non domiciled individuals, from the need to submit UK tax returns where they do not have a UK tax liability. Under the existing rules the relief is lost if the individual receives any UK income at all, even a few pounds of interest on a joint bank account. Under the new rules the individual can receive up to £100 of UK interest taxed at source and still benefit from the exemption. The change is backdated and applies for 2008/09 and subsequent years.

In addition, no formal claim to use the remittance basis will be required where unremitted income and gains are less than £2,000 - it will be given automatically unless the individuals wishes to be taxed on an arising basis.

A new exemption has also been introduced for non domiciled employees who have paid foreign tax on overseas earnings. Where these earning are less than £10,000 and foreign interest is less than £100, no claim for the remittance basis will be required.

The legislation will be amended to ensure that the £30,000 remittance basis charge is available as a tax credit to cover gift aid payments to charity. The changes will be effective from 6 April 2008.

Two other tightening up measures were announced:

- amendments are being made to ensure that the interaction of the settlements tax regime and the remittance basis operates as originally intended.

- the definition of relevant person is extended to ensure that a subsidiary of a close company is also a relevant person if the close company is a relevant person.

Who will be affected?

Individuals who are resident but not domiciled or not ordinarily resident in the UK.

When

The changes to the definition of relevant person and tax treatment when part of a set is brought to the UK take effect from 22 April 2009. The other measures are backdated to 6 April 2008.