Non-UK domiciliaries who are long term UK resident currently pay a Remittance Basis Charge (RBC) for the privilege of being taxed on the ‘remittance basis’. Currently the RBC is £30,000 for those who have been UK resident for seven out of the last nine years and £50,000 for those who have been UK resident for 12 out of the last 14 years.
Additionally, the non-UK domiciliary can decide annually – based on each year’s income and gains – whether to elect to pay tax on the remittance basis.
The RBC charge will remain the same for those who have been UK resident for seven out of the last nine years, however it is set to increase for those who have been resident in the UK for more than 12 years:
- The existing charge for those who have been resident for 12 out of the last 14 years is set to increase to £60,000 from 2015/16.
- For those who have been resident in the UK for 17 out of the last 20 years a third tier charge of £90,000 is also proposed.
In addition, the government will consult on making the election apply for a minimum of three years.
These changes raise the hurdle at which it will be economically sensible for a non-UK domiciliary to pay the RBC, thus bringing more non-UK domiciliaries under the ‘arising’ basis of taxation (or prompting them to leave perhaps?).
In addition, the proposal for a minimum three year election period will make it harder for non-UK domiciliaries to plan how the RBC might be used. For example, those likely to make large gains only in year 3 might have to suffer the RBC in years 1 and 2 too when they might otherwise have wished to avoid doing so.
The introduction of a 17 out of 20 years test is interesting. This is one of the periods used for ‘deemed domicile’ for inheritance tax. Does this herald a ‘deemed domicile’ rule for income and capital gains tax in the future?