George Osborne announced in the 2011 Budget that there would be no further changes to non-domiciled taxation in this Parliament. A new consultation, ‘Ensuring a fair contribution from non-UK domiciled individuals’, circumvents that announcement by proposing legislation for early in the next Parliament. Trailed in the 2014 Autumn Statement and published on 22 January 2015, it proposes a minimum three-year time period for a remittance basis claim.
Currently, an individual who is resident but not domiciled in the UK can choose, separately for every year, to be liable for income tax and CGT on either all their foreign income and gains (‘the arising basis’) or only on the foreign and gains that they bring into the UK (‘the remittance basis’). There are two costs of choosing the remittance basis: the individual will lose their personal allowances, and must pay an annual remittance basis charge (‘RBC’).
The Government introduced the RBC in April 2008. The bands for the 2013/14 tax year are as follows:
- individuals resident in seven out of the nine tax years prior to the remittance claim pay £30,000; and
- individuals resident in 12 out of the 14 previous tax years pay £50,000.
For the 2015/16 tax year, the 2014 Autumn Statement left the seven years charge untouched, but raised the 12 years charge to £60,000 and introduced a new charge of £90,000 for individuals resident in 17 out of the 20 previous tax years (aligning it with the inheritance tax deemed domicile rule that brings such individuals into the UK inheritance tax net).
The main proposal of this consultation is to require remittance basis claims to be made for three years, rather than annually as currently is the case, hence tying the individual into paying the annual RBC for that period.
This change will mean that individuals will need to think not about one year only but about their financial position over a three year period. The consultation argues that any uncertainty about the future during the three year period will be mitigated because:
- the claim will continue to be made by 31 January after the end of the tax year, over halfway through the second of the three years covered;
- individuals can still amend their tax returns for a year after filing; and
- individuals who currently pay on the arising basis will still be able to elect into the remittance basis for four years after the first tax year in question (although not vice versa).
As for what happens after the three years, the consultation suggests two alternatives: making a fresh three year claim, or claiming on a rolling basis (ie so one would elect every year by looking ahead to the next year that is outside the claim). This second option is a nod towards maintaining certainty.
If an individual dies within the period, their personal representatives could revoke the claim. However, individuals who become temporarily non-resident (ie returned within five years) would have the remaining years of the period held over until their return.
The aim of the proposal
The title of this consultation makes it clear that these proposals are aimed at raising revenue rather than simplifying the tax system. Many consultations during this Parliament have shown the same refocus. The consultation gives its purpose as ‘to reduce opportunities for non-UK domiciled individuals to arrange their tax affairs with the aim of not paying the charge on a regular basis’.
Despite the consultation title, the Government states it is open to options less aggressive than a minimum claim period. For example, restricting the ability to claim the remittance basis for a three year period after an individual elects for the arising basis. However, given it would probably raise a lesser amount, it is hard to see why the Government would choose this alternative. There is also potential to increase the impact of the change. One way might be for the Government to increase the length of the claim for longer-term residents (for example, those on the increased £60,000 charge to elect for a four year period, and those on the new £90,000 charge for five years), and another might be to introduce deemed domicile for all tax purposes (not just inheritance tax) after 17 out of 20 years’ residence.
The consultation closes on 16 April. Although this date is very close to the election, it seems likely that whichever party wins will press ahead with this politically popular idea. If re-elected, the Government intends to introduce legislation to take effect from April next year.