Budget Notes

BN103 RESIDENCE AND DOMICILE: PERSONAL ALLOWANCES AND THE REMITTANCE BASIS

Who is likely to be affected?

1. UK residents paying tax on the remittance basis who have unremitted foreign income and gains in excess of £2,000 a year.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to end entitlement to certain personal allowances and reliefs for income tax for individuals resident in the UK who claim to use the remittance basis of taxation. These individuals will similarly lose access to the annual exempt amount (AEA) for capital gains.

Operative date

3. This change will have effect on and after 6 April 2008.

Current law and proposed revisions

4. All UK residents are entitled to a personal tax allowance and reliefs for income tax and the AEA for capital gains. The majority also pay tax on their worldwide income and gains even if that income and gains remains offshore. UK residents who are either not domiciled, or not ordinarily resident, in the UK can pay tax on the remittance basis which means that income and gains arising overseas are taxed in the UK only when, and if, they are brought into the UK.

5. On and after 6 April 2008, individuals who claim use of the remittance basis will not be entitled to any of the personal income tax allowances. This includes the basic personal allowance and age-related allowances, blind person's allowance, tax reductions for married couples and civil partners and relief for life insurance payments. Remittance basis users will also lose access to the AEA for capital gains.

6. A de minimis limit will have effect so that remittance basis users who have unremitted foreign income and gains of less than £2,000 a year will be able to retain access to any of the personal income tax allowances to which they are entitled and the AEA for capital gains. This £2,000 limit is instead of the £1,000 limit proposed in the Pre-Budget report.

7. Individuals who have access to the remittance basis of taxation can choose each year whether they wish to claim the remittance basis of taxation or pay tax on their worldwide income and gains. Individuals will be entitled to the personal income tax allowances and the AEA for capital gains in a particular year if they do not claim the remittance basis in that year.

Further advice

8. If you have any questions about this change, please email offshorepersonal.taxteam@hmrc.gsi.gov.uk or telephone 020 7147 2762. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk