Remittance basis planning
It is now more than two years since the rules for the taxation of those entitled to use the remittance basis changed but there is still much confusion concerning the way the new rules work. Some individuals who have previously used the remittance basis now find that being taxed in the UK on a worldwide basis is more beneficial.
Is the remittance basis still right for you?
Speaking to us before you send us your Tax Return information will ensure that you understand what information you need to collate to allow an informed decision to be made.
US citizens should reappraise whether or not to use the remittance basis following a ruling from the Internal Revenue Service that the remittance basis charge may be relieved against US tax.
Will you have to pay the £30,000 remittance basis charge?
Although it is currently £30,000, the remittance basis charge will increase to £50,000 from April 2012 for those who have been resident in the UK for twelve or more years.
Consider whether your offshore income and gains can be structured so that there is no UK tax liability on them. Alternatively, consider whether matters can be structured so that the remittance basis charge does not have to be suffered by both spouses.
Consider what to do with mixed funds
There are special rules for taxing remittances from mixed funds. We can help you to segregate mixed funds and get the best from the matching rules.
Open a "nominated income" account
The remittance basis charge must be linked to actual foreign income or gains. If you remit any of the nominated income or gains, special matching rules apply that will disadvantage you. A small offshore account can be opened to act as your "nominated income" account that you need never touch. Interest must be received on the account before 5 April to be effective for 2011/12.
Consider whether to elect for foreign capital losses to be allowable losses
The first year you choose to use the remittance basis after 2008 you can elect for your foreign capital losses to be allowable losses. However there are downsides to making an election and it needs to be carefully considered. You and your spouse can elect independently.
Rebasing election for offshore trusts
Offshore trustees with beneficiaries who are UK resident but non-UK domiciled may elect for assets held in the trust and underlying companies to be re-based as at 6 April 2008 for capital gains tax. The election must be made by 31 January following the end of the tax year that the first capital payment is made to a relevant beneficiary.
Offshore trustees should consider whether to appoint assets to beneficiaries if they have reduced in value since 6 April 2008.
Changes for next year
In addition to the increase in the remittance basis charge for longer term residents mentioned above, a new relief is will be available from 6 April 2012 for money remitted to the UK for investment in a qualifying business. This broadly means an unquoted trading company (or a company listed on exchange related markets)and will include companies that develop or let commercial property but not residential property.
Please contact your usual Littlejohn tax adviser for advice on how the changes to the remittance basis will affect you, or email tax@littlejohnllp.com
