HMRC have issued another batch of frequently asked questions and answers only a month after the last lot. It is a bit like “University Challenge.” We should not complain – this is very helpful material, although it does contain some odd passages including the following:
- A new section on Alienation that does not contain any fresh thinking, but is a helpful and clear confirmation of the position.
- Numerous references throughout the document confirm that the existence of Extra Statutory Concession A11 (split-year treatment) will not operate to reduce the £30,000 charge or affect the new provisions in any way.
- Similarly, there are a number of references to Treaty residence and it is made clear that all years of actual residence in the United Kingdom will count towards the seven-year test even if, in some years, the taxpayer was treated as resident in another country under a double taxation agreement tiebreaker.
- There are some new explanations concerning capital gains tax losses and, in particular, the clogged losses rules in Section 18 TCGA 1992.
- There is a detailed explanation of the rules in Section 809W ITA 2007 relating to the payment of professional fees of UK advisers out of foreign income. This includes a helpful recommendation by HMRC that if there is work undertaken on UK property and on property outside the United Kingdom, if the work can be distinguished and charged separately, it should be. In that way the exemption will apply to the fees for the non-UK property that are paid outside the United Kingdom.
There is a bewildering example about a plumber who comes from Poland to the United Kingdom and becomes resident in September 2008. He has two suits. One was purchased in June 2008 and the other in December 2008 – both out of income from work in Poland. HMRC go to great length to explain why, if on subsequent visits he wears the suit purchased in December, it would be a taxable remittance, but if he wears the suit purchased in June, it would not. I do not see why, because it would surely be excluded by Section 809Z2, being clothing, footwear, jewellery or watches for his personal use. However, even if they are right, you would have thought that HMRC would have been too embarrassed to publish something so absurd and would conclude (rightly) that it would bring them into disrepute. However, I fear that the Treasury has lost all touch with reality.
Let us look at this some more. A remittance includes enjoying foreign income in the United Kingdom, e.g., bringing an asset to the United Kingdom that had been purchased out of foreign income. The income is taxable only if it arose at a time when the individual was UK resident. (That is why the suit purchased in December, by which time the plumber had become resident, was taxable). However, a moment’s thought reveals the absurdity here. Most UK-resident non-doms spend a good deal of time outside the United Kingdom and will no doubt spend their foreign income in their home country or elsewhere. When they come to the United Kingdom, will they have to ensure that their luggage contains no items that have been purchased abroad apart from clothing, footwear, jewellery or watches? Woe betide them if they had some dental work or hair extensions (whatever they are) done whilst they were abroad! – and what about their mobile, or camera?
Maybe there will be a big new sign at the airport: “Did you buy your children’s socks with your foreign income? Please go through the new Arrivals channel, where you can examine all these FAQs.” I wonder what colour this channel would be. Puce sounds appropriate, so that it would not clash with the faces of the passengers.
It gets worse. HMRC pose the question:
“If someone purchases an aeroplane ticket in New York for a flight from JFK to Heathrow, does the fact that the plane lands here mean that the entirety of the service is deemed to be provided in the UK and therefore if the plane ticket is purchased out of relevant foreign income it is deemed to be remitted?”.
HMRC say yes. The service was provided in the United Kingdom because the plane lands here. But what if the flight was from JFK to Frankfurt (or from Dublin to Paris) and did not land in the United Kingdom? It would necessarily pass through UK airspace (which HMRC confirms is part of the United Kingdom), so that must be a remittance too. There are no “in transit” rules that apply here. Let us hope that HMRC agree that this is bonkers and decide to reconsider their interpretation.