Budget 2008 > Individuals > Remittance basis - closing loopholes
 

Remittance basis - closing loopholes

The remittance basis of taxation allows UK resident but non domiciled individuals to pay tax only on non UK income and gains that are brought into the UK. In the Pre-Budget Report it was announced that a number of anomalies in this regime would be removed.

Draft legislation in relation to this was issued in January and the main changes introduced have been confirmed. The major exception is the treatment of offshore trusts which is dealt with below. The key points are:

• The current rule whereby foreign investment income is not taxed if it remitted in a tax year after the recipient has ceased to hold the asset which generated the income is to be abolished.

• If offshore investment income is used to buy an asset outside the UK which is then brought to the UK this is treated as a remittance.

• Assets purchased out of foreign investment income before 11 March 2008 will not be taxable if they are imported to the UK, even if imported after 6 April 2008.

• The current rule that allows an individual not to claim the remittance basis for one tax year and remit income tax free during that year is to be abolished.

• New rules will be introduced to determine the order in which remittances are made from an offshore account which contains a mixture of different types of income, capital and capital gains.

• If assets derived from offshore income or gains are given away to family members, who bring them to the UK, this importation is treated as a remittance. Immediate family members include spouses, civil partners, individuals living together and their children and grandchildren under 18. This is a narrower class than that used in the draft legislation in January which included adult children and brothers and sisters.

Two additional changes have been made to the draft legislation:

• Currently non domiciliaries cannot set their offshore capital losses against capital gains. From 2008-09 individuals who do not claim the remittance basis will be able to get relief for offshore losses. Individuals who claim the remittance basis will be able to elect for a regime that allows them to get relief for foreign losses arising in years in which they do not claim the remittance basis.

• The proposal to tax foreign income used to pay the interest on offshore mortgages will not apply to mortgages taken out before 12 March 2008 unless the terms of the loan are varied after then.