Winter Tax Update for Non-UK Residents & Non-UK Domiciles
At the end of summer 2014 we released an update on a number of consultations and changes the UK Treasury was considering implementing which would impact specifically non-UK residents and non-UK domiciles. The original update can be found at here.
The results of the consultations were announced in December, as well as a number of other changes announced as part of the Chancellor’s Autumn Statement given on 4 December. Harbour Key’s summary of the Autumn statement can be found at online.
We have summarised below the main announcements that will impact non-UK residents and non-UK domiciles from April 2015.
Increases in the Remittance Basis User Charge
The Remittance Basis User (RBU) Charge was introduced in April 2008. The initial charge applied to individuals not domiciled in the UK, but resident for seven out of the previous nine tax years, who were required to pay a £30,000 annual charge to be taxed on the remittance basis. The charge was extended in April 2012 with the introduction of a £50,000 RBU charge for individuals not domiciled in the UK, but resident for 12 out of the previous 14 tax years. In the Autumn Statement the RBU charge of £50,000 was increased to £60,000 and a third charge was introduced of £90,000 for individuals not domiciled in the UK, but resident for 17 out of the previous 20 tax years, which will coincide with when the individual would become UK deemed-domiciled for inheritance tax purposes. The new charges will apply from 6 April 2015. In addition, the Government is going to consult on making the election to pay the RBU charge apply for a minimum of three years. At present, individuals can elect to pay the RBU charge on an annual basis; therefore they are able to arrange their affairs so that it is tax-efficient to pay the charge occasionally. If this measure is introduced, an individual who makes large foreign gains in a particular tax year will need to suffer the RBU charge for a minimum of three years.
New Capital Gains Tax on the Disposal of UK Residential Property by Non-UK Residents
In last year’s Autumn Statement it was announced that consideration was being given to introduce Capital Gains Tax for non-UK residents who dispose of UK residential property. In spring of 2014 the Government issued a consultation document. Currently non-UK residents do not pay capital gains tax on the disposal of any type of UK sited investment asset. Details of the consultation and proposed charge can be found at on our website. The results of the consultation and new legislation propose extending the capital gains tax regime to non-UK resident individuals, non-resident trustees, partners of non-UK resident partnerships and some non-resident companies who dispose of UK residential property. Disposals by foreign or UK REITs will not be affected by the new legislation, nor will disposals by diversely-held institutional investors (e.g. pension funds) and the Government has introduced a ‘narrowly controlled company test’. Property used for communal purposes, for example boarding schools, certain student accommodation and nursing homes will not be within the scope of the new legislation. However, property rental businesses will be within the new rules. The Government has confirmed that the rate for companies who dispose of UK residential property will mirror the Corporation Tax rates, currently 20%. The rates for individuals will mirror the personal Capital Gains Tax rates, currently 18% or 28% depending on the individual’s other UK income and capital gains, and individuals will also have access to the Capital Gains Tax annual exemption. Non-resident individuals may also be able to claim Principal Private Residence Relief (PPR) if the property at one stage was their home. Only the gain arising since April 2015 will be within the scope of the new legislation and the chargeable gain will be calculated either by reference to an April 2015 valuation or time-apportioned over the ownership of the property. Taxpayers will also have the option to choose the most beneficial basis. The gain will need to be reported to HMRC within 30 days of the disposal of the property and, where the owner is not a UK taxpayer, the tax will also need to be paid within 30 days. Where the individual or company is already within HMRC’s self-assessment regime they will be able to pay the tax as part of their self-assessment instead. Non-UK residents holding UK residential property will need to consider obtaining property valuations. On a positive note, the Government has confirmed that the introduction of Capital Gains Tax for non-UK residents will not apply to commercial property!
Amendments to the ATED Rates
In the 2013 budget the Chancellor introduced the Annual Tax Envelope Dwelling Tax, commonly referred to as ATED. This new tax regime applies an annual tax to residential properties used as dwellings held within structures (referred to as envelopes) to shelter or minimise the property from UK taxes such as capital gains tax and stamp duty. Initially the tax only applied to properties worth more than £2 million, however in the recent Autumn Statement the Chancellor announced significant changes to the ATED bands and rates, as follows: Property Value (£) Charge for Tax Year 2014/2015 (£) 2015/2016 (£) Less than 1,000,000 0 0 1,000,001 - 2,000,000 0 7,000 2,000,001 - 5,000,000 15,400 23,350 5,000,001 - 10,000,000 35,900 54,450 10,000,001 – 20,000,000 71,850 109,050 20,000,001 upwards 143,750 218,200
Restricting entitlement to the personal allowance for non-residents
At the beginning of the summer, the Government announced that it was going to consult on withdrawing the personal allowance (the amount an individual can earn tax-free) from certain non-UK residents. Currently all individuals who have a source of UK income are entitled to the personal allowance. Following the summer consultation, the government will not proceed with the proposed restriction. However, it says there is a strong case for change and will continue to discuss the implementation of this change with stakeholders. This measure potentially relates to all non-UK resident taxpayers including EEA nationals and Isle of Man and Channel Islands’ residents but would not affect non-resident taxpayers who benefit from a personal allowance under a specific provision of a double tax treaty and those who obtain a high percentage of their income from the UK. No changes will come into effect before April 2017.
Harbour Key Limited
8th January 2015
