Business
Tax net widens to 'catch' foreign income
14th February 2008
Lucy Bryant, the tax manager with Thames Valley accountants and business advisers James Cowper, explains new rules for non-residents working in the UK.
FOR most of us, paying tax on our worldwide income is a fact of life. However, for foreign nationals who are UK resident but not UK domiciled, ie they were not born here nor are intending to remain here permanently, there is a get-out-of-UK-tax card, which can be played in respect of their non-UK income – providing they leave the income outside the UK.
This is known as the remittance basis of taxation. Many UK resident foreigners are able to structure their finances so they do not need to remit their foreign income to the UK.
Furthermore there are legitimate planning techniques which enable the foreign income to be brought into the UK, free of UK tax, in the years following the year it arises.
Many feel this tax treatment is unfair but the Government has been reluctant, historically, to make major changes to the laws, for fear of driving away foreign investors.
However, the Government recently announced radical changes in its November pre-Budget report to the remittance basis of taxation for non-UK domiciled individuals - likely to take effect from 6 April 2008.
Under the new proposals, foreign domiciles who have been UK tax resident for seven out of the past ten years will also now be taxable on their worldwide income, unless their unremitted foreign income is less than £1,000 per year.
Foreign nationals who have already been UK resident for seven consecutive years will find themselves subject to the new rules from April 6 this year.
Furthermore, the ‘source ceasing’ practices which enabled income to be converted into capital for tax purposes (and remitted free of UK tax) will no longer be accepted by HMRC.
It will still be possible for non-UK domiciled individuals to elect to remain within the remittance basis of taxation – but this election comes at a cost of £30,000 per year, in the form of a surcharge and the loss of UK personal allowances and annual Capital Gains Tax exemption.
Therefore, it is likely that only those with unremitted foreign income of at least £80,000 per annum will benefit from paying this surcharge.
For further information contact Lucy Bryant on (01865) 200500 or lbryant@jamescowper.co.uk
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