M
The Mirrlees Review commissioned by the Institute of Fiscal Studies looked at how a modern tax regime should operate. The thinking from Mirrlees is expected to feature in any Office of Tax Simplification’s review of capital taxes.
The recommendations include abolishing the current IHT regime in favour of a lifetime capital transfer tax. The tax would be payable by the recipient as is the case in some other countries such as France and Spain.
One other recommendation was to scrap the existing CGT exemption that exists on death, which could encourage the earlier gift of wealth. No timescales exist for IHT and CGT to be formally reviewed, so the recommendations in this report remain academic for the moment.
N
Non-UK domiciled individuals can elect for their overseas income and gains to be taxed in the UK when they are remitted back to the UK. There is a charge for long-term UK residents who elect to be taxed on this remittance basis.
The charge is £30,000 for those who have been resident seven out of the last nine tax years. The rate has increased to £50,000 from 6 April, 2012, for those who have been UK resident for 12 out of the previous 14 tax years.
Those who may now be subject to the increased charge will need to consider whether their overseas income and gains merit paying the charge.
O
Ordinary residence is separate from residence and implies a greater degree of permanence. However, it looks set to be abolished from 6 April, 2013, when the new statutory residence test is introduced.
There are two principal taxation issues that arise as a result of ordinary residence, and which will cease to apply.
The first is that those who are not ordinarily resident in the UK can currently claim the remittance basis on their foreign sourced income even if they are UK domiciled. Second, for CGT, an individual who is non-UK resident could still be liable on UK and overseas gains, if they are ordinarily resident in the UK.
P
P is for periodic charges. There will be a consultation on the IHT charges paid by relevant property trusts. The aim is to simplify the calculation of the ten yearly anniversary and exit charges. This is good news. The complexity was out of all proportion to the tax liability.
Q
QROPS rules have undergone a shake up from 6 April, 2012. The changes included in the Finance Bill 2012 are intended to tighten the reporting requirements and to discourage the use of schemes that provide tax advantages.
Schemes must now report to HMRC on any payments or transfers for up to ten years from the date of transfer, and the taxation of benefits should be the same for both resident and non-resident members. This has seen the number of schemes on the HMRC-published QROPS list plummet, as HMRC takes a closer look at certain jurisdictions.
R
R is for residence. The UK intends to implement a Statutory Residence Test from 6 April, 2013. The current rules are taken from case law and for the internationally mobile client these can be uncertain in scope. The new statutory test should provide the certainty that is currently lacking. The proposals are to include a three part test. The first is an examination of conclusive non-residence and conclusive residence. The final is a tie breaker where neither of the previous tests was conclusive.
The test introduces a number of connection factors with the UK that include the location of family, home and work, along with the days spent in the UK in the previous year and the time spent in other countries. The number of days spent in the UK to be treated as UK resident is then reduced according to the number of connection factors and whether someone is coming to or leaving the UK.
S
S is for spouse, and in particular non-UK domicile spouses. The amount that a UK domiciled spouse can transfer free of IHT to their non-dom spouse is to be increased.
In recent years we have seen IHT reliefs and exemptions for agricultural property and charities extended to the EEA, so it is good news to see this may now be extended to address the £55,000 non-dom spouse exemption.
There are also plans to allow a non-dom spouse to elect to be treated as UK domiciled for IHT purposes, giving an unlimited IHT spouse exemption. But watch out for the consultation, as there may be a sting in the tail with this election. Details are awaited.
T
Time apportionment relief, which is currently available to offshore bond investors, is to be extended to also apply to onshore bonds from April 2013. This valuable relief for internationally mobile clients allows chargeable gains to be proportionately reduced by any time spent as a non-UK resident throughout the policy term.
U
The UEFA Champions League final will be played at Wembley Stadium in 2013. Special income tax rules for non-UK resident competitors will mean that their UK earnings attributable to the final will not be taxable in the UK. These measures are essential to bidding for major sporting finals and similar provisions exist for this year’s Olympics.
V
V is for visiting the UK. The day counting rules for UK residence treat someone as present in the UK if they are in the country at midnight (unless they are simply in transit through an airport and are not engaged in business at the airport).
Internationally mobile individuals will need to keep comprehensive details of their movements under the proposed statutory residence test in order to qualify as non-UK resident.
W
Withholding taxes on overseas dividends are not being reclaimed, and it is costing UK investors significant sums in unclaimed refunds. Often a country’s double taxation agreement with the UK may include reduced withholding tax rates for UK investors.
For example, this could be as much as a 15% reduction in the rate payable for US denominated shares, and can be reclaimed using a form available from US IRS.
The process for reclaiming varies from country to country and some countries, such as Spain and France, may require a tax agent to make the reclaim.
X
X is for cross-border succession (admittedly, a tenuous link with ‘X’!). The EU has recently agreed to introduce new legislation on cross border succession.
These measures come in to effect from 2015, and will provide greater certainty over which country’s succession laws will apply where an individual dies with assets in more than one EU member state. The applicable law will be that where the deceased was last habitually resident.
The UK and Ireland have currently opted out of this legislation until issues over the clawback of lifetime gifts can be resolved, which arises in countries with forced heirship rules.
Y
Years for tax in the UK can be split. The tax year can be split by concession, when someone leaves the UK permanently or takes up full time work abroad. Similarly those coming to the UK to reside here for more than two years can benefit from the split year treatment. This treatment is expected to be included within the main body of legislation when the Statutory Residence Test is included within the 2013 Finance Bill.
Z
Did you know the UK has tax treaties with Zimbabwe, Zaire (now Democratic Republic of Congo) and Zambia?
