Non-doms in the spotlight as HMRC looks to increase tax yield.

The tax authorities are reminding thousands of non-domiciled UK residents when tax may be due on purchases, money transfers or even gifts, coming into or out of the UK. The reminder letters are being sent to non-doms who paid tax on the 'remittance basis' during the 2011-12 tax year.

Many non-doms have the choice of paying tax on the default 'arising' basis or electing for the alternative 'remittance basis'. Being taxed on a remittance basis means that all income and gains from a UK source are taxable, as well as any foreignsource income and gains remitted to the UK. Depending on the number of years spent in the UK, a 'remittance basis charge' may be payable in addition to the tax due, which can be £30,000 or £50,000 for each year that the remittance basis is claimed.

A remittance to the UK for tax purposes not only includes transferring funds from an offshore bank account, but also purchasing assets in the UK, such as a home, UK shares or a car, using money from an overseas bank account.

Grey areas

While this may all sound reasonably straightforward, there are several grey areas as to what non-doms should put on their tax returns. Individuals may be inadvertently liable for a tax charge if, for example, they give foreign income to a spouse who brings it to the UK, transfer foreign income to a UK charity, or if the rental for an overseas holiday home is paid into their UK bank account.

Another potential scenario caught by the rules might involve a non-dom gifting money from his or her foreign income to an adult son or daughter living abroad. Say three years later, the child passes on some of these funds to their 16-year-old child (the non-dom's grandchild), who spends the money during a visit to the UK. Because the non-dom and the minor grandchild are 'relevant persons', this is treated as a remittance of the foreign income previously given away and needs to be reported on the non-dom's tax return.

"Educational exercise"

HMRC is embarking on what it describes as an "educational exercise", hoping that it will prompt people to see where they may have made mistakes and come forward. Clearly, anyone who is unsure whether or not they should have declared a transaction should put their hand up or get further advice, as it is likely that these reminder letters will be followed up with far more strongly worded approaches in the months to come – potentially with an increase in penalties.

Statutory residence test – what's new?

International jet-setters will need to take careful note of their arrivals and departures from the UK.

Anyone who is non-UK resident for tax purposes but on the fringes of the maximum number of days they are allowed to spend in the UK, will need to keep a detailed daily record of their movements, noting the time of arrival and departure from the UK, not simply the date. Without this information, they could fall foul of the rules and end up with extra tax to pay.

Under the new statutory residence test rules, automatic tests will take account of days spent in the UK and overseas, time spent working and whether a home is available in the UK. Tie tests will consider the amount of time an individual spends in the UK and their connections with the UK.

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