Residence and Domicile: Guidance on the new tax rules

Finance Act 2008 changes

The Finance Act 2008 made a number of changes to the remittance basis tax rules and some changes to the tax residence rules. The changes can be found in sections 24 and 25 and Schedule 7 of the Finance Act 2008 (PDF 1.6MB). A brief summary of the changes is available.

Guidance on the new rules introduced by the Finance Act 2008

We have produced some new, and some replacement, guidance which reflects the 2008 Finance Act changes and other recent changes. Some wholly new guidance is being issued in some areas, such as domicile, to help people correctly self-assess their tax liability.

We have also announced some changes to our operational procedures as explained in the Revenue & Customs Brief 17/09 published on 25 March 2009.

Most of the guidance will initially be published here but over the coming months it will be incorporated into existing guidance manuals, as appropriate. This page also provides links to guidance published elsewhere.

We will be introducing two new guidance manuals, the 'Residence, Domicile and Remittances' manual and the 'Transfer of Assets' manual:

  • The new guidance on the remittance basis forms part of the Residence, Domicile and Remittances manual. The new guidance on domicile will also be moved to that manual in autumn 2009. We will be providing additional technical guidance on residence for incorporation in the new manual later this year.
  • The new guidance on the application of the remittance basis to the Transfer of Assets legislation will be moved to the new Transfer of Assets manual when it is published later this year.

Some interim guidance has been made available already, mostly in the form of Frequently Asked Questions (FAQs) (most of which have now been withdrawn) and the explanatory notes for Schedule 7 Finance Act 2008. These are being incorporated in the new permanent guidance as appropriate.

The following guidance is already available:

We are continuing to develop and add to this guidance and have asked stakeholders and other interested parties to let us have feedback on how useable and helpful they find the guidance to be. We have incorporated into the new The Residence, Domicile & the Remittance Basis guidance (HMRC6) many of the comments we received after we asked for views on the replacement guidance for IR20. A short summary of the feedback (PDF 18K) is available.

The old IR20 guidance will be withdrawn and so any practices associated with it will not apply from 6 April 2009. However to help those dealing with years prior to 2009-10 a copy of the old IR20 is still available (PDF 391K).

Changes to the remittance basis rules in the Finance Bill 2009

At the Budget on 22 April 2009, it was announced further changes were being made to some of the rules in this area and these have now been published as clauses 51 and 52 and Schedule 27 of the Finance Act which is available here:

clauses 51 and 52 and Schedule 27 of the Finance Act

Our guidance will be updated to reflect these changes once the Bill becomes law. In the meantime, we have produced a series of Frequently Asked Questions (FAQs ) which provide more detail.

New guidance on foreign currency bank accounts and the remittance basis

We have received a number of requests for clarification of the way in which users of the remittance basis should treat gains and losses that arise from movements between overseas bank accounts held in a foreign currency. Draft guidance on this issue is available here.

Capital gains tax: gains and losses on foreign currency bank accounts held by remittance basis users

On 16 December 2009 the Financial Secretary to the Treasury announced in a written ministerial statement a proposal to include legislation in Finance Bill 2010 to prevent certain capital gains tax losses from transactions on foreign currency bank accounts. The losses arise typically where remittance basis users make a remittance that comprises or includes remitted foreign income.

The legislation will have effect in relation to withdrawals from accounts on or after the date of the announcement.

HMRC has now published a technical note on foreign currency bank accounts (PDF 68K) giving details of how the new rules will work. For convenience a copy of the ministerial statement is included as an annex to the note.

Remittance basis users with small amounts of capital gains from foreign currency transactions

For the purposes of capital gains tax (CGT), an overseas bank account held in a foreign currency is a chargeable asset. This means that any transfer of funds out of such an account represents a disposal, or part disposal, of the asset upon which a capital gain or loss might arise. However, if the total net gains which arise from these transfers is equal to or less than the Annual Exempt Amount (AEA), there will usually be no CGT to pay.

In most cases, individuals who choose to be taxed on the remittance basis will lose the AEA. This means they will be required to report the CGT payable on any movements between such accounts when completing their Self Assessment returns if those gains are remitted to the UK.

HM Revenue & Customs (HMRC) recognise that this might involve significant administrative obligations on taxpayers and their agents and have published a number of methods designed to reduce these difficulties. Further details can be found here.

In addition, HMRC recognise that an individual's CGT liability in respect of the gains and losses arising on such accounts may be limited, but the cost of establishing the liability may be high, for instance where there are many transactions to take into account. In these circumstances, where the amount of net gains from transfers from overseas non-sterling bank accounts which an individual remits to the UK is less than £500 in any tax year in which they are taxed on the remittance basis, they will not be required to report such gains on their tax returns. This practice will apply for 2008-09 and subsequent tax years.

Extension of Statement of Practice (SP) 10/84 to non-domiciled individuals

Statement of Practice (SP) 10/84 describes a practice under which all bank accounts in a particular foreign currency may be treated as a single account in certain circumstances.

This practice is not available to individuals who are not domiciled in the United Kingdom in respect of their foreign currency bank accounts located outside the UK.

However this technical note sets out details of an extension to this SP which will allow individuals who are not domiciled in the United Kingdom to treat their offshore bank accounts in a particular foreign currency as a single account.