RSS feedsCan I still make a gift outside of the UK to my family from untaxed offshore income or offshore assets standing at gain, and would they be able to bring the money or assets into the UK without it being treated as a ‘remittance’ and taxable?
Yes you can, but not as freely as before and care will need to be taken. For a while it looked as though the new legislation would block family tax planning in this area. The remittance will now be taxable on you if it is made by a ‘relevant person’, which includes your spouse (or cohabitee), your minor children or your grandchildren. This means that gifts to adult family members other than your spouse/partner will still be an effective way of ‘alienating’ the foreign income and gains that can then be brought into the UK tax free (provided you are not able to derive any ongoing benefit from the gift).
I want to bring money into the UK from abroad. Can I be sure what will be a classified as a ‘remittance’ and therefore taxable?
Under the new rules you will have to examine whether you have been tax resident in the UK for seven out of the last nine tax years. If you have, you will now need to choose (in each year of assessment) whether to pay a £30,000 annual tax charge to access the ‘remittance basis’ of taxation. If you do not pay the tax charge, you will pay tax on your foreign income and capital gains as they arise.
If you elect for the remittance basis then you will pay tax only on what you remit to the UK. The definition of remittance has been widened to cover any way in which you are able to benefit from your foreign income or gain in the UK.
If you buy a car abroad using foreign income or gains and then bring it to the UK, that will now constitute a remittance. There are exceptions for low value chattels and personal possessions. You can still bring capital into the UK that is ‘clean’ in that it does not comprise any element of untaxed income or g ain.
I am a beneficiary of an offshore trust, living in the UK. The trust makes regular payment to me. Am I going to have to pay tax on the money I receive? Would it make any difference if I lived outside the UK?
It is likely that the trustees will now pay tax on the payment. If you are electing for the remittance basis, tax will only be payable on benefits you receive into the UK.
Distributions to you will be matched against income and then against gains within the trust. Gains made prior to 6 April 2008 should not be taxable against future distributions. The tax rate for gains can go up to a maximum 28.8% after six years if the distribution takes place after the trustees made the gain and that gain is matched to a distribution to you.
In a change to the original proposals, no tax will be charged if you receive the distribution offshore (provided you elect to be taxed on the remittance basis).
Trustees have the ability to ‘rebase’ assets to their 6 April 2008 value if there are unrealised gains currently within the trust and they can choose to rebase after the distribution is made. The rules are complicated and they should take legal advice on the taxation of your interest.
How many days can I spend in the UK in each year without being treated as tax resident? How detailed will my records need to be?
Days of arrival and departure never used to be included in the day count for UK tax residence, but now they are. You will be a UK tax resident if you are in the UK for 183 days in any tax year. There is also a broader time test which states that you will be a UK tax resident if you average 91 days a year over a four-year period.
If you come to the UK on a Friday and leave on a Sunday that used to mean only one day was counted, but now it could mean three. The trigger is whether you are in the UK at midnight: so as long as you arrive after midnight on the Friday morning and leave before midnight on the Sunday night you will be treated as spending two days in the UK. If you can prove you were ‘in transit’ between airports at any time (midnight included), and not engaged in business during that transit period, the time will not form part of the residence test. It seems your records will need to be as good as they can be, and (as was not so in a recent case) your diary must accord with your plane tickets.
I use untaxed foreign income to fund interest payments on my mortgage for my UK property. The lending bank is outside the UK. Will the untaxed income used to meet the mortgage payments be taxable as a remittance?
Not if the mortgage was in existence before 6 April 2008. Payments against new offshore mortgages will be treated as a remittance. For existing mortgages, the exception will continue for 20 years. The loan must not be amended and no further advances can be made. You should not assume your arrangement will be unaffected and you should take advice.
Hayden Bailey is a solicitor in the private client team at Boodle Hatfield
