Consultation outcome

Ensuring a fair contribution from non-UK domiciled individuals: consultation on a minimum claim period for the remittance basis charge

Updated 17 July 2015

0.1 Foreword

The UK is a very attractive location for individuals and businesses. We have taken great strides to make the UK more competitive and better equipped for the global race by striving for a system that supports economic growth and investment, including through ensuring we have the most competitive tax rates of any country in the G20. Those efforts are paying off as the UK has become the most attractive location in Europe for global investors, overtaking Germany for the first time, ^{[footnote 1]} and is set to have the largest economy in Europe by 2030.^{[footnote 2]}

But we understand that we’re operating in a highly globalised economy, where businesses, capital and labour are all extremely mobile. We recognise the significant contribution that non-UK domiciled individuals make in the UK, creating jobs and inward investment. That is why we stand firmly behind the remittance basis of taxation, which is a unique way of taxing people. With the changes announced at Autumn Statement 2014, the UK will continue to offer a very competitive tax regime, allowing people who are not domiciled here to base themselves in the UK for a long time whilst maintaining a different tax status.

However, we expect individuals to contribute their fair share to the UK in return for the benefit of living in this country. I have listened to informed views outlining that non-UK domiciled individuals, who have benefited from living and working in our country for a long period, can too easily plan their arrangements so as to only pay the remittance basis charges occasionally. Ensuring the claim to pay the remittance basis charge applies for a minimum of three years will mean that non-UK domiciled individuals will not be able to arrange their tax affairs with the aim of not paying the charge on a regular basis. We will also consider alternative approaches that could have the same effect. Of course, anyone who would prefer not to pay the charge can still simply pay tax on their worldwide income and gains, as any other UK domiciled resident would have to do and, indeed, residents of almost every other country.

This government has made it a priority to reduce the deficit and to do so it is necessary to make some difficult decisions to balance the books. Even with an increased level of charge and the minimum claim period, I believe the UK continues to represent one of the very best and most attractive locations for individuals and businesses across the world.

David Gauke MP

Financial Secretary to the Treasury

1. Introduction

1.1 Background

At the Autumn Statement 2014 the government announced it would consult on making the claim to pay the remittance basis charge apply for a minimum of 3 years.

1.2 Aim of the consultation

This consultation seeks to better understand the reasons why individuals choose not to pay the remittance basis charge each year and why this can change from year to year. It seeks views on how a minimum claim period for the charge might apply but also any alternatives that would also meet the government’s objectives. Views are invited from a wide range of respondents, including individuals, advisers, and representative and professional bodies.

The government is not seeking views on the increased remittance basis charges announced at Autumn Statement 2014.

1.3 Policy aim

The government is seeking 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. The government believes it is fair to ask those individuals who claim the remittance basis to commit to paying the charge for a minimum period when they have been resident in the UK for at least 7 out of the previous 9 years.

1.4 Policy context

The government recognises that non-UK domiciled individuals make a valuable contribution to the UK economy – through the money they spend here, the funds they invest, the skills they bring as employees and as entrepreneurs, and the tax they pay. In response to a competitive global environment, the UK offers a very competitive tax regime, allowing people who are not domiciled here to base themselves in the UK whilst maintaining a different tax status. The government continues to believe that the UK offers a very attractive location for non-UK domiciled individuals to live and work.

Since 2008, those resident in the UK for at least 7 out of the previous 9 years must pay a charge if they choose to be taxed under a special regime whereby they are liable to UK tax on their income and gains arising in the UK, but only taxed on their overseas income and gains to the extent that they are brought into the UK. At Autumn Statement 2014 the government announced increases to the charges from April 2015 and it would consult on making the claim to pay the remittance basis charge apply for a minimum of 3 years.

1.5 Structure of the document

The remainder of the document is set out as follows:

• Chapter 2 explains the current taxation of non-UK domiciled individuals and outlines the changes announced at Autumn Statement 2014
• Chapter 3 sets out more detail on the claim to pay the remittance basis charge
• Chapter 4 provides a summary of the consultation questions
• Chapter 5 explains the consultation process

1.6 Stage of consultation

The proposals in this document are at stage 1 (setting out objectives and identifying options) of the government’s tax consultation framework.

1.7 Planned timeframe

This consultation will run from 22 January 2015 to 16 April 2015.

1.8 How to respond

Please send comments by the end of 16 April 2015 to:

Remittance basis claim consultation
Personal Tax Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Email: nondomiciletaxation@hmtreasury.gsi.gov.uk

2. Background

2.1 Current taxation of non-UK domiciled individuals:

Many tax authorities distinguish between permanent residents and those from abroad who have less connection with the jurisdiction. The UK does this using the well-established concept of domicile and recognises the generally different nature of non-domiciles’ links to the UK by having a dedicated set of tax rules for them. Under these rules individuals who are resident but not domiciled in the UK are:

• able to claim tax relief on overseas workdays during the first three years in the UK
• liable to UK tax on all their income and capital gains which arise in the UK; but
• able to claim to pay UK tax on non-UK (“overseas”) income and capital gains only if they are remitted to the UK

Those people who are not domiciled in the UK and whose unremitted overseas income and gains are less than £2,000 in the tax year do not need to make a claim to pay tax on the remittance basis. People who are UK resident and domiciled in the UK are liable to UK tax on their worldwide income and capital gains.

The remittance basis rules are set out in Chapter A1 of Part 14 of the Income Tax Act 2007. These provide that an individual who is resident but not domiciled in the UK can choose to be taxed under a special regime whereby they are liable to UK tax on their income and gains arising in the UK, but only taxed on their overseas income and gains to the extent that they are brought into the UK. Since 2008, making the remittance basis claim has meant forfeiting both the personal allowance for income tax and the annual exempt amount for capital gains tax for most claimants.

Those who have been resident in the UK for more than 7 out of the past 9 tax years can pay an annual £30,000 remittance basis charge to continue to use the remittance basis. Since April 2012, the charge is £50,000 for those who have been UK resident for 12 out of the past 14 tax years.

2.2 Changes announced to the remittance basis charge at Autumn Statement 2014

Looking forward to the next Parliament, at Autumn Statement 2014 the government announced it would make changes to the remittance basis charge. While it is right that the tax system encourages skilled individuals to come to the UK from abroad, the government believes that the time is right to increase the contribution that non-UK domiciled individuals make. This is especially the case when they have been resident in the UK for many years, benefiting from the UK’s public services, infrastructure and stable political environment over a long period.

As a result, the government will increase the remittance charge for non-UK domiciled individuals who have been resident in the UK for 12 of the past 14 years, and introduce a new charging point for those who have been resident for 17 of the past 20 years. The introduction of the 17 year charge point aligns this policy with the inheritance tax deemed-domicile rule. The new charges, which will have effect on and after 6 April 2015, are:

• £60,000 for those who have been resident for 12 of the last 14 years
• £90,000 for those who have been resident for 17 of the last 20 years

The charge for those resident for 7 of the past 9 years will remain unchanged at £30,000. Those who have been resident for less than 7 years will continue to be able to use the remittance basis with no charge. The remittance basis charge will continue not to apply if the non-UK domiciled individual has less than £2,000 of unremitted foreign income and gains in a tax year or is under 18, no matter how long they have been resident in the UK.

At Autumn Statement 2014 the government also announced it would consult on making the claim to pay the remittance basis charge apply for a minimum of 3 years, so that non-domiciles are not easily able to arrange their tax affairs so as to only pay the charge occasionally. This is considered in the following chapter.

3. Claim to pay the remittance basis charge

3.1 Current position

Individuals can currently choose whether or not to pay the remittance basis charge on an annual basis. Those who make a claim to pay the charge make the claim on their self-assessment tax return after the end of the relevant tax year. This decision to make the claim will depend on the individual’s circumstances, such as the level of their overseas income and capital gains, which may fluctuate in response to the economic environment and investment decisions.

3.2 Announcement at Autumn Statement 2014

At the Autumn Statement 2014 the government announced it would consult on making the election to pay the remittance basis charge apply for a minimum of 3 years. This means the remittance basis charge will be payable for three consecutive years, whether or not overseas income and gains are actually remitted into the UK. This would mean, for example, that an individual who has been resident for more than 17 out of 20 years would be committing to pay £90,000 in each of the three years if they chose to claim the remittance basis. It is intended that this minimum claim period will take effect in the next Parliament, from April 2016.

3.3 Rationale for the introduction of a new minimum claim period

As well as the economic environment and investment decisions, the decision to make the claim can also depend on how individuals choose to plan their affairs for tax purposes. For example, some wealthy people have sufficient control over their financial affairs that they are able to plan so they don’t have to pay the charge each tax year, bringing income and capital gains into the UK periodically so that exposure to the charge is minimised. Some investment products, such as offshore bonds, are marketed to non-UK domiciled individuals to promote this.

The government believes it is fair to ask those non-UK domiciled individuals who claim these remittance basis rules to commit to paying the charge for a minimum period when they have been resident in the UK for sufficiently long to have to pay the charge. It is also mindful that the increases in the remittance basis charge will increase the incentive for some individuals to further structure their affairs so that exposure to the charge is minimised and income and gains are not remitted into the UK.

At present, the charge is paid by more than 5,000 non-UK domiciled individuals each year, with almost 9,000 individuals having paid the charge in total since its introduction in 2008. Almost 3,000 individuals have paid the charge in each year since it was introduced, with a further 1,000 individuals paying the charge in 4 of the 5 years for which data is currently available. Analysis suggests that up to 800 individuals paying the remittance basis charge in 2012-13 had stopped claiming the remittance basis in the past and were now claiming it again. This does not mean that all those individuals are planning their affairs to reduce exposure to the remittance basis charge; it may simply reflect the fluctuation of income and gains or individuals who become temporarily non-resident.

However, it has been suggested to the government that some very wealthy non-domiciles do actively plan their affairs so that they only pay the remittance basis charge every few years. This is likely to be exacerbated by the higher charges announced at Autumn Statement 2014.

Question 1:

Based on your experience, what are the reasons for individuals choosing to pay the remittance basis charge again after a period of non-payment?

Question 2:

To what extent are individuals actively planning their affairs with the aim to reduce exposure to the remittance basis charge? How do they do this?

3.4 Proposed minimum claim period

The government considers a 3 year claim period to be a reasonable minimum period of time for long-term residents to commit to the remittance basis charge. This strikes a balance between the annual claims, which allow a judgement to be made on whether to pay the charge in relation to a particular year, and a lengthier period which would require people to have much greater foresight about their future income and gains.

The government believes this minimum period ensures greater fairness without acting as a significant disincentive to those who wish to come to the UK. The extended claim period could be more difficult for individuals with overseas income and gains that fluctuate significantly particularly where that is outside the person’s control but this potential uncertainty is mitigated by a number of factors:

• 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

Question 3:

Does the proposed minimum claim period strike the appropriate balance, noting the opportunities to mitigate the potential uncertainty?

The government would welcome views on how to treat subsequent claim periods. There are 2 main options following the first minimum 3 year period:

• the individual could be required to make a claim for the following three years in much the same way as the initial claim. For example, if the final year covered by the initial claim is 2018-19 then the individual could be asked if they wish to make a new claim for the following three years on their self-assessment return for 2019-20, which would mean they will pay the remittance basis charge for 2019-20, 2020-21 and 2021-22

• the claim period could become a rolling period so that the individual is in effect taking an annual decision on the previous three year period once that initial three year claim has passed. For example, if the final year covered by the initial claim is 2018-19 then the individual could make an election for 2019-20 that applies to that year only. If no election was then made for the following year, 2020-21, an election made in a later year would again have to be for a minimum of 3 years; so, a claim in 2021-22 would mean paying the remittance basis charge in 2021-22, 2022-23 and 2023-24

 Question 4:

How should subsequent claim periods be treated?

The government is also interested in whether there is support for the minimum period to be extended further. For example, in line with the remittance basis charges increasing depending on how long an individual has benefited from being resident in the UK, there may be merit in the claim period increasing in a similar way. For example, those resident for 12 out of 14 years might have a minimum claim period of 4 years and those resident for 17 out of 20 years might have a minimum claim period of 5 years.

Question 5:

Do you believe there would be merit in introducing further increased minimum claim periods based on the number of years that an individual has been resident? If so, how should that be structured?

3.5 Circumstances when the claim will not span 3 consecutive years

As outlined above, all individuals will continue to be able to amend their self-assessment tax return within the normal time limits for making an amendment if they find that they wish to change their decision to claim for the remittance basis charge for a 3 year period. However, there will be a small number of other circumstances where it would be inappropriate for the full 3 year claim to apply. These circumstances are:

• if an individual makes a claim but dies during the period then the remittance basis charge may be revoked. For example, if an individual makes a claim covering 2016-17, 2017-18 and 2018-19 but dies during 2017-18 then it would be possible to revoke the claim

• if an individual becomes non-resident during the course of the claim period then any remaining years for the claim period would be held over until they become resident in the UK again, assuming they do so within the next 5 years. This aligns the remittance basis charge with the rules on temporary non-residence for relevant foreign income and capital gains tax purposes. If an individual does not become resident again in those five years then the claim would cease to apply for the remaining years. For example, if an individual makes a claim covering 2016-17, 2017-18, and 2018-19 but becomes non-resident in 2018-19 then the final year of the claim period would be held over, assuming the individual becomes resident in the UK again before the end of 2023-24

Question 6:

Are these appropriate ways to deal with circumstances where an individual stops being resident in the UK? If not, how would you recommend dealing with them?

Question 7:

Are there other special circumstances when it might be inappropriate for the claim period to span 3 consecutive years? If so, how would you recommend dealing with those circumstances?

3.6 Tax planning

The government expects those benefiting from the generous remittance basis of taxation to make a fair contribution to the Exchequer. The introduction of the 3 year minimum claim period responds to views that some wealthy individuals benefiting from living and working in the UK could too easily arrange their affairs to minimise exposure to the remittance basis charge.

However, the government accepts some individuals wishing to remain resident in the UK may be advised to change their behaviour or structure their affairs in a different manner for tax planning purposes. The government would like to better understand the options that advisers will present to those individuals so that it can consider the likely effectiveness of the introduction of a minimum claim period.

Question 8:

Please explain if and how individuals resident in the UK will plan their affairs in response to the introduction of a minimum claim period.

3.7 Alternatives and complementary action

The minimum claim period means that non-UK domiciles will not be able to arrange their tax affairs with the aim of not paying the charge on a regular basis. However, the government is open to alternative ideas or complementary action alongside the minimum claim period to help achieve this objective.

For example, rather than defining a minimum claim period for the remittance basis, the government could consider restricting the ability to claim the remittance basis for three years once an individual begins to pay tax on an arising basis. Should an individual claim the remittance basis for 2016-17 but not claim it for the following year then they would lose the option to make a claim for 3 years– 2017-18, 2018-19 and 2019-20. The earliest they could make a claim for the remittance basis would therefore be 2020-21.

Question 9:

Are there alternatives to the minimum claim period that would ensure greater fairness in the contribution made by non-UK domiciled individuals? Or is there complementary action that should be taken in conjunction with the minimum claim period?

4. Summary of consultation questions

1. Based on your experience, what are the reasons for individuals choosing to pay the remittance basis charge again after a period of non-payment?

2. To what extent are individuals actively planning their affairs with the aim to reduce exposure to the remittance basis charge? How do they do this?

3. Does the proposed minimum claim period strike the appropriate balance, noting the opportunities to mitigate the potential uncertainty?

4. How should subsequent claim periods be treated?

5. Do you believe there would be merit in introducing further increased minimum claim periods based on the number of years that an individual has been resident? If so, how should that be structured?

6. Are these appropriate ways to deal with circumstances where an individual stops being resident in the UK? If not, how would you recommend dealing with them?

7. Are there other special circumstances when it might be inappropriate for the claim period to span 3 consecutive years? If so, how would you recommend dealing with those circumstances?

8. Please explain if and how individuals resident in the UK will plan their affairs in response to the introduction of a minimum claim period.

9. Are there alternatives to the minimum claim period that would ensure greater fairness in the contribution made by non-UK domiciled individuals? Or is there complementary action that should be taken in conjunction with the minimum claim period?

5. The consultation process

This consultation is being conducted in line with the tax consultation framework. There are 5 stages to tax policy development:

• Stage 1 – Setting out objectives and identifying options
• Stage 2 – Determining the best option and developing a framework for implementation including detailed policy design
• Stage 3 – Drafting legislation to effect the proposed change
• Stage 4 – Implementing and monitoring the change
• Stage 5 – Reviewing and evaluating the change

This consultation is taking place during stage 1 of the process. The purpose of the consultation is to seek views on the policy design and any suitable possible alternatives.

5.1 How to respond

The closing date for this consultation is 16 April 2015.

Responses should be sent by email to nondomiciletaxation@hmtreasury.gsi.gov.uk or by post to:

Remittance basis claim consultation
Personal Tax Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

All responses will be acknowledged, but it will not be possible to give substantive replies to individual representations.

When responding please say if you are a business, individual or representative body. In the case of representative bodies, please provide information on the number and nature of people you represent.

5.2 Confidentiality

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1988 (DPA) and the Environmental Information Regulations 2004.

If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory code of practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Treasury.

HM Treasury will process your personal data in accordance with the DPA and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties.

5.3 Consultation principles

This consultation is being conducted in line with the code of practice for written consultation, which sets down the following criteria:

• formal consultation should take place at a stage when there is scope to influence the policy outcome
• consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible
• consultation document should be clear about the consultation process, what is being proposed, the scope of influence and the expected costs and benefits of the proposals
• consultation exercises should be designed to be accessible to, and clearly targeted at, those people the exercise is intended to reach
• keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees’ buy-in to the process is to be obtained
• consultation responses should be analysed carefully and clear feedback should be provided to participants following the consultation
• officials running consultations should seek guidance in how to run an effective consultation exercise and share what they have learned from the experience

If you feel that this consultation does not fulfil these criteria, please contact:

Oliver Toop
Consultation Co-ordinator
Budget Team
HM Revenue & Customs
100 Parliament Street
London
SW1A 2BQ

Email: hmrc-consultation.co-ordinator@hmrc.gsi.gov.uk

Please do not send responses to the consultation to this address.

1. UK 2014: winning the race- but still more opportunity, EY, June 2014 ↩

2. World Economic League Table 2015, Centre for Economic and Business Research, December 2014 ↩