Minimum claim period for remittance basis charge

Autumn Statement 2014 announced that HM Treasury would consult on making the remittance basis election apply for a minimum of three years. The consultation document was published on 22 January 2015 and it states that the aim of the consultation is to make sure that non-UK domiciled individuals “contribute their fair share to the UK” and are “not able to arrange their tax affairs with the aim of not paying the charge on a regular basis.”

Non-UK domiciled individuals may elect to claim the remittance basis so that UK tax on their foreign income and gains is limited to the extent that their foreign income and gains are not remitted to the UK. However, those non-UK domiciled individuals that have been resident in the UK on a long term basis must pay a ‘remittance basis charge’ (RBC) for the privilege of being taxed on that basis (and, of course, the Autumn Statement also announced increases to the RBC – see below).

The government is unhappy with the current rules because they allow a non-UK domiciled position to decide whether to claim the remittance basis on a year on year basis.  In particular, the government is concerned that individuals are arranging their affairs so that they trigger foreign income and gains in a single year rather than over a number of years.  We are told that:

some very wealthy non-domiciles do actively plan their affairs so that they only pay the remittance basis charge every few years.

To this end the government are consulting on making the claim to pay the RBC to apply for a minimum of three years (or alternatives) to meet its objectives.

It is acknowledged that the extended claim period will adversely affect those with fluctuating foreign income and gains, although we are told that:

  • the claim will continue to be made on the self-assessment tax return, which has a deadline for filing at the end of January of the following year. For example, the return for 2013-14 is due by 31 January 2015. This means individuals will have a good understanding of their income and gains for up to 21 months of the 36 months covered by the claim.
  • individuals will continue to be able to amend their self-assessment tax returns within 12 months of the statutory filing date, so individuals will be able to change a decision on a claim within that time limit if they choose to do so.
  • individuals who pay tax on the arising basis will continue to have four years after the end of the tax year in which to claim the remittance basis, which also allows individuals to make a final decision based on a full understanding of their worldwide income and gains in those circumstances if they choose to do so.

We are also told that:

  • the proposed new rules will be aligned with the temporary non-residence rules so that if an individual becomes UK resident again within three years then any remaining years for the claim period would be held over until they become resident in the UK again.
  • special rules will apply to revoke the remittance basis charge where an individual dies within their elected three year period.

In addition the government are consulting on how to treat periods falling after the first three year fixed term election.  It is anticipated that either:

  • a further election could be made for the following three years; or
  • the claim would become a ‘rolling claim’ made on an annual basis so long as the remittance basis charge is paid each year. If the remittance basis charge is not paid in one of the following years then the next claim would have to be for a further three years.

The consultation closes on 16 April 2015.  It is intended that if enacted these rules will come into force from April 2016.

The consultation also refers to the government’s announcement at the Autumn Statement that the remittance basis charge for those resident for 12 of the 14 previous tax years will be increased from £50,000 to £90,000 and a new higher remittance basis charge of £60,000 will be introduced for those resident for 17 out of the previous 20 tax years.

No doubt many non-UK domiciled individuals will be looking mitigate the effects of the proposed new rules before the end of the current tax year, or during 2015/16.  For someone meeting the 17 out of 20 year test, the minimum RBC in 2014/15 is £50,000; in 2015/16 it will be £90,000 but from 2016/17 it could be £270,000.  The imperative to realise offshore income and gains sooner rather than later is .

For further information and help on how to advise your clients in relation to the above, please contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.