Under the old rules affecting UK resident non-UK domiciled individuals, it was not possible for a UK resident non domiciled person claiming the remittance basis (the client) to offset losses on his or her foreign assets against gains on his or her foreign assets. However, under the new regime introduced by the UK Finance Act 2008, foreign losses can now be used and so this is an encouraging development. The legislation provides a mechanism for the client to make a foreign loss "election". In deciding on whether an election for loss relief is appropriate in his or her circumstances, there are a number of key points which the client needs to bear in mind.
First, the election must be made in the first year from 6 April 2008 in which the client makes a claim to pay tax on the remittance basis whether or not he or she has been UK resident for seven out of the preceding nine tax years and is paying the £30,000 remittance basis user charge. If an election is not made, the client will not be able to use foreign losses in subsequent years. Therefore, if the client intends to claim the remittance basis for the current tax year (2008/09), he or she has a one-off opportunity to claim foreign loss relief for this and future tax years. The client has until the end of January 2010 to decide whether it is worth making a loss election (with the election itself made in his or her tax return), though advice should be sought before then.
Second, once the election is made, the client cannot revoke it. Once it is made, that is it. So, for these two reasons alone, deciding whether or not to make a loss election will be critical.
In many cases it may be very difficult to decide whether it would make sense to make a claim for loss relief because the client may not know at this stage whether losses are likely to arise in future years, or whether he or she is likely to remit foreign gains.
A further point to bear in mind is that in making the loss election the client will need to disclose details of his or her foreign gains and losses to HMRC. Some may find this too intrusive, others may be more relaxed.
By way of a simple example, take a UK resident non-domiciled individual who has offshore income of £150,000. He claims the remittance basis for 2008/09 and, because he has been UK resident since before 6 April 2002, he pays the £30,000 charge. He has sold some foreign investments at a gain. He also has capital losses in respect of a sale of some other foreign investments. He needs to decide before the end of January 2010 whether to make a foreign loss election. If he makes the election, he will be able to offset the foreign losses against the gain. However, he will also need to disclose details of his foreign gains and losses to HMRC. If he does not make the election, he cannot offset the losses against the gains and will pay tax at 18% if they are remitted to the UK. Furthermore, he will not be able to offset any foreign losses against foreign gains in the future.
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.
