Amendments to the New Rules Introduced in Finance Bill 2009

The 2009 Finance Bill, published on 30 April, includes a number of minor changes to the remittance basis of taxation. These are contained in clauses 51 and 52 and Schedule 27 of the Bill which is available on the UK Parliament website. These arose out of consultation with external stakeholders on the changes made to the remittance basis rules by Schedule 7 of the Finance Act 2008 and seek to improve their clarity and reduce their administrative complexity.

• Individuals on low income.
• Individuals with small amounts of overseas income and gains.
• Individuals with small amounts of taxed UK investment income.
• Exemption for certain assets.
• Property forming part of a larger set.
• Relevant persons and close companies.
• Gift Aid.

Individuals on Low Income

The Finance Bill introduces a new tax exemption for foreign individuals on low income who take employment in the UK and who also have income from a job overseas in the same year. Its effect will be to remove the obligation to file a Self Assessment Tax Return in order to claim double taxation relief on the overseas income.

Who can take advantage of this new exemption?

The exemption is available to individuals who are resident but not domiciled in the UK, and who have only overseas employment income of less than £10,000 and overseas bank interest of less than £100 in any tax year, all of which is subject to tax overseas. Such individuals will not be liable to pay UK tax on that overseas income, nor to complete and file a Self Assessment Tax Return unless they are required to do so for some other reason – such as having untaxed UK investment income.

When does this exemption come into effect?

The exemption applies to overseas employment and savings income for the tax year 2008-09 and subsequent tax years.

Is it necessary to have paid tax in another country on the overseas income?

No. Although ‘subject to a foreign tax’ might in some circumstances mean that the individual is required to pay tax on the income abroad, this is not a necessary requirement to take advantage of this exemption. As a result of overseas personal allowances, or provisions akin to such allowances, or of a tax rate of 0 per cent, there might be no requirement to pay tax on part or all of the income. However, such income would still be considered to be ‘subject to a foreign tax’ in the context of this exemption.

Individuals with Small Amounts of Overseas Income and Gains

Legislation clarifies that foreign individuals with small amounts of overseas income and gains are not required to file a Self Assessment Tax Return in order to use the remittance basis of taxation.

Who will be affected by this change?

This clarification applies to individuals who are resident but not domiciled or not ordinarily resident in the UK, and who have overseas income and gains of less than £2,000 in any tax year which is not remitted to the UK. Such individuals will not be required to complete and file a Self Assessment Tax Return in order to use the remittance basis of taxation.

Individuals with Small Amounts of Taxed UK Investment Income

The rules which require an individual to file a Self Assessment Tax Return in order to use the remittance basis of taxation are relaxed with regard to foreign individuals whose UK tax liability for a year arises only from small amounts of taxed UK investment income. Where they meet certain conditions, they will not be required to file a Self Assessment return to use the remittance basis.

Who will be affected by this change?

This relieving provision applies to individuals who are resident but not domiciled or not ordinarily resident in the UK, and who have less than £100 of UK taxed investment income in any tax year, provided they have no other UK taxable income in that year.

When do these changes come into effect?

Both changes apply for the 2008-09 tax year and subsequent tax years.

Exemption for Certain Assets

Currently certain assets purchased only from overseas investment income can be brought into the UK without creating a taxable remittance, including clothing and other items for personal use, property imported temporarily or for repair, and where the asset cost less than £1,000. This exemption has been extended to cover such assets where they have been purchased out of foreign employment income or foreign capital gains.

Who will be affected by this change?

The wider exemption will be available to users of the remittance basis who use their overseas employment income or foreign capital gains to purchase property abroad which they bring into the UK.

Property Forming Part of a Larger Set

The Finance Bill clarifies that, in cases where an item of property which forms part of a larger set, such as a piece of furniture, and which has been bought out of overseas income or gains is brought into the UK, the value of the item should be determined on a fair and reasonable basis recognising it is part of a set and as such worth more than it would be if it was just a single item. This is an anti-avoidance measure which aims to prevent abuse of the rules.

When does this change come into effect?

This rule applies to items of property which are brought into the UK on or after 22 April 2009.

Relevant persons and close companies

The Finance Bill clarifies the definition of a relevant person for the purposes of the remittance basis. In particular, it confirms that references to a close company also include subsidiaries of such companies. This is an anti-avoidance measure which aims to prevent abuse of the rules.

When does this change come into effect?

This rule came into effect from 22 April 2009.

Gift Aid

Minor changes are made to the rules to ensure that those who pay the £30,000 Remittance Basis Charge and also make donations to charitable bodies will still get Gift Aid tax relief in the same way as other taxpayers.

When does this change come into effect?

This rule came into effect from 6 April 2008.

Source – http://www.hmrc.gov.uk. HMRC Copyright is acknowledged