New rules are proposed to increase the amount of the remittance basis charge in certain circumstances and to allow tax-free remittances for the purposes of investing in qualifying businesses.

Non-UK domiciled individuals are broadly liable to UK tax on offshore income and gains only to the extent that they are remitted to the UK. Individuals that have been resident in the UK for at least seven of the last nine years must pay a £30,000 remittance basis charge to HMRC in any year in which they wish to use this regime, or otherwise be charged to UK tax on all income and gains regardless of where they arise in that year.

Remittance basis charge

The remittance basis charge will be increased to £50,000 p.a. for those who have been resident in the UK for at least 12 of the 14 years prior to the year of the claim. The charge will work in exactly the same way as the current £30,000 charge and will take effect from 6 April 2012.

There should therefore be increased interest in planning that allows control over when income and gains arise (to minimise the years for which you need to pay the remittance basis charge). This might include overseas trusts and bonds with interest paid at redemption.

Remitting to invest in qualifying businesses

Non-domiciled individuals will be allowed to remit income into the UK without incurring a UK tax charge where they do so to invest in a "qualifying business", broadly:

  • businesses carrying out a trading activity; or
  • businesses undertaking the development or letting of commercial property as a substantial part of their businesses; but not
  • the holding and letting of residential property nor leasing of intangible moveable property.

Views are sought on whether remitting funds to invest in listed companies should also be tax-free, although this does not sit consistently with the stated aim of the reform as being to promote "generation of jobs, tax receipts and wider economic benefits". Nevertheless, the additional flexibility and simplicity of this proposal would be attractive to taxpayers.

The investment must be made into a UK company (or an offshore company with a UK permanent establishment) and it will be possible to invest either directly or via an investment vehicle or trust. To allow private equity companies to qualify, investment may also be made into a company which holds other companies provided it is part of a trading group.

On disposal of the investment, the proceeds must be taken out of the UK within two weeks if an immediate tax charge on the value of the investment is to be avoided. It seems that any gain (or loss) from the disposal of the investment itself will be taxed in the usual way.

Anti-avoidance

The Government aims to prevent individuals from deriving personal benefit from this relief. The anti-avoidance measures will include, for example, provisions which allow the investor (and family) to work in the business to which the funds are remitted, and receive a commercial salary, but will prevent any non-commercial payments such as guarantees or loans.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.