HM Revenue and Customs Brief 17/09
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Issued 25 March 2009
Residence, Domicile and the Remittance Basis: Operational
The Finance Act 2008 made a number of changes to the
remittance basis tax rules and some changes to the residence rules.
These changes followed the ending of the review of residence and
domicile which started in 2002. The changes can be found in sections 24
and 25 and Schedule 7 of the Finance Act 2008 but can be summarised
- Most individuals now need to make an annual claim to the
- Individuals claiming the remittance basis of taxation,
where they have unremitted foreign income or gains of £2,000 or more
arising in the tax year, lose their entitlement to personal allowances
and the annual exempt amount for Capital Gains Tax.
- The introduction of an annual £30,000 tax charge for adult
remittance basis users resident in the UK in the current year and for
seven or more of the previous nine years where they have unremitted
foreign income or gains of £2,000 or more in the current year.
- Changing the day counting rules that determine when someone
becomes resident in the UK under the 183-day rule to count as a day any
day upon which an individual is in the UK at the end of that day (ie at
midnight), subject to a new rule for transit passengers.
- Closure of a number of loopholes and flaws in the
remittance basis that allowed people to bring untaxed income or gains
into the UK tax-free.
- In the light of these changes HM Revenue & Customs
(HMRC) is making some changes to the way we deal with residence,
domicile and the remittance basis of taxation.
The main HMRC guidance for residence, domicile and remittance
basis issues has for many years been the IR20. This was updated last
year to incorporate some changes introduced by Finance Act 2008 but, as
already announced; we recognise that IR20 needs significant revision.
So guidance to replace the IR20 will be published soon and at the same
time the IR20 will be withdrawn. We will also be withdrawing any other
HMRC guidance on residence and ordinary residence contained in other
HMRC manuals, Statements of Practice and publications (for example
R&CB 01/07, TB52, SP/A10, SP3/81, SP2/91, SP17/91). In the
light of this any practices associated with the old guidance, whether
in IR20 or elsewhere, will not apply from 6 April 2009, unless provided
for in the new guidance. That new guidance will be in the form of a new
set of internet based guidance supported by HMRC guidance manuals for
our staff which are also published on the Internet.
The new guidance reflects the 2008 Finance Act changes, other
changes from other Finance Acts and recent court decisions in this
area. Some wholly new guidance is being issued in some areas, such as
domicile, to help people correctly self-assess their tax liability.
Some interim guidance had been made available already, mostly
in the form of Frequently Asked Questions (FAQs) and the explanatory
notes for Schedule 7 Finance Act 2008. This interim guidance will be
incorporated into the new permanent guidance as appropriate. The
following guidance has already been released:
- Guidance on Employment Related Securities -
- Guidance on section 690 ITEPA directions as explained below
- Statement of Practice 1/09 (which replaces Statement of
Practice 5/84). - http://www.hmrc.gov.uk/practitioners/sop.pdf
- Coming to work in the UK -
The remaining guidance will be published shortly and will
- A simple guide to residence, ordinary residence and
- The 'Residence, Domicile & the Remittance Basisí
guidance (HMRC6). This replaces the old IR20.
- New guidance on the remittance basis rules. (This will form
part of the new 'Residence, Domicile and Remittances' manual for HMRC
- Some new guidance on domicile. (This will move to the
Residence, Domicile and Remittances manual in due course.)
- Some new guidance on non-resident trusts.
- Some guidance on the application of the remittance basis to
the Transfer of Assets legislation. (This will form part of the new
'Transfer of Assets' manual for HMRC staff.)
- Updates to the Capital Gains Tax manual to reflect the
changes to the remittance basis.
- A new short guide for international students.
- Revised guidance on letting property abroad.
Most of the guidance
will initially be published but over the coming months it will be
incorporated into existing guidance manuals as appropriate and
published as part of our general internet guidance. The same webpage
will provide links to any guidance published in existing guidance
Initial non-domicile claims Ė Form DOM 1
Tax Bulletin 29, published in June 1997, announced that
following the introduction of self assessment HMRC (the former Inland
Revenue) would no longer provide a residence rulings service. However
we continued to accept initial nonĖdomicile claims on forms DOM 1 or
P86. Enquiries are sometimes undertaken into such claims under Schedule
1A TMA 1970. In addition an enquiry under section 9A TMA 1970 can also
be made into a claim to non-domicile status made on a Self Assessment
tax return either as a stand alone enquiry or as part of a wider
The publication of our new guidance on domicile, plus the fact
that from 2008-09 onwards a claim to the remittance basis is no longer
mandatory, and must be made on a year by year basis where an individual
has unremitted foreign income or gains of £2,000 or more arising in the
tax year, mean that HMRC will no longer accept initial non-domicile
claims on form DOM 1 or form P86. Form DOM 1 is being withdrawn
completely. It will be replaced by the new comprehensive domicile
guidance mentioned above that will allow the vast majority of people to
self assess their own domicile status. Form P86 will also be withdrawn
soon and replaced by a new form. Until such time as the new form is
issued individuals do not need to fill in boxes 12 to 17 on the P86
when submitting it. If they choose to fill in those boxes HMRC will
ignore the content when processing the form.
Any DOM 1 forms received by HMRC by close of business 25 March
2009 will still be processed but any received after that date will be
In future, enquiries about domicile status will, subject to
the comments below about Inheritance Tax, be dealt with by way of an
enquiry into a Self Assessment tax return upon which an individual has
claimed the remittance basis on the grounds that they are not domiciled
in the UK. Where an individual has already submitted a form DOM 1 or
P86 and obtained an initial view from HMRC about their domicile status
it will be unusual for us to open an enquiry into domicile status in
the few years after that, unless new information becomes available that
indicates our initial view was incorrect or there has been a change in
circumstances. However with the passage of time, circumstances and
intentions change and so that initial view from HMRC can become less
and less useful as an indicator of domicile status. For example if an
individual had advised HMRC on their arrival in England a decade or so
ago that they planned to leave the UK after five years but had since
married, had a family and decided to make England their permanent home
then they will have adopted a domicile of choice within the UK.
Domicile and Inheritance Tax
Where an individual who is not domiciled in the UK settles
non-UK assets into a non-UK resident trust then assets in that trust
will not be subject to inheritance tax. Following the release of the
new HMRC guidance on domicile most settlors should now be able to
decide for themselves whether or not they are UK domiciled.
An individual setting up a non-resident trust who, having
taken account of the new HMRC guidance, considers they are non-UK
domiciled is not obliged to submit an Inheritance Tax account to HMRC.
If the settlor is non-UK domiciled then no Inheritance Tax is due. But
if an Inheritance Tax account is submitted in these circumstances, HMRC
will continue its existing practice and only open an enquiry into that
return if the amounts of Inheritance Tax at stake make such an enquiry
cost effective to carry out. At present that limit is £10,000.
As is currently the case, where HMRC has expressed an opinion
on the domicile status of a settlor for Inheritance Tax purposes we
will not normally seek to reconsider that opinion unless new
information becomes available that indicates our initial opinion was
incorrect or there has been a material change in the circumstances of
the settlor. However, when we make a decision it applies only to the
date of the transaction concerned. So if circumstances change, the
individual returns to the UK for example, that individualís domicile
may need to be considered again at another point in time. Domicile is
not a static thing, it can change as peopleís circumstances and
Enquiries into domicile status
For 2008-09 and later years, in order to make a valid claim to
the remittance basis individuals will be required to state on their
Self Assessment tax return the grounds for their entitlement by stating
either that they are not domiciled in the UK or that they are not
ordinarily resident in the UK (or both). The new domicile guidance will
help individuals decide their domicile status, supported as appropriate
by any professional advice they may obtain. As a result, if HMRC
decides to enquire into an individualís domicile status this will be by
way of a section 9A TMA enquiry into their Self Assessment tax return.
(Alternatively in appropriate cases HMRC may enquire into an
individualís domicile status by way of a Part VIII IHTA enquiry into an
Inheritance Tax return.) Where a claim to the remittance basis is not
challenged for that year it does not mean HMRC necessarily accepts the
individualís domicile is outside the UK and does not prevent HMRC from
later opening an enquiry to consider the domicile status of the
individual in relation to that, or any earlier year.
Enquiries aimed at establishing an individualís domicile are,
by their very nature, examinations of an individualís background,
lifestyle, habits and intentions, possibly over the course of a
lifetime. Consequently, any such enquiries conducted by HMRC will,
where necessary, extend to areas of individualsí and their familiesí
affairs that may not normally be regarded as relevant to their UK tax
position. As a result of some feedback from customers on such domicile
enquiries our new domicile guidance includes a section starting at
paragraph 49600 which explains the nature of a domicile enquiry and the
sorts of questions an individual will need to answer as part of that
Where HMRC has expressed a view on an individualís domicile
status for income tax or capital gains tax purposes, as a result of an
enquiry, then that view will also apply for Inheritance Tax purposes at
that time. Likewise a HMRC view expressed for Inheritance Tax purposes,
following a Part VIII IHTA enquiry, will also apply for income tax and
capital gains purposes at that time. However, it is important to
remember that each decision on domicile will be made at a certain point
in time, if circumstances have changed since the time of the relevant
decision, the domicile of the taxpayer may also have changed.
Remittance basis users whose foreign income and gains is less
Under section 809D ITA 2007 an individual who is entitled to
claim the remittance basis of taxation but whose total unremitted
foreign income and gains is less than £2,000 in any tax year, can use
the remittance basis without having to make a formal claim each year by
submitting a Self Assessment tax return. Also, such users will not lose
any of their Personal Allowances or their Annual Exempt Amount.
Individuals making use of section 809D are still taxable on
any foreign income or gains remitted to the UK. Remittances may be in
the form of cash, assets or services enjoyed in the UK. Taxable
remittances have to be included on a self assessment tax return. Also,
some people who are able to use the remittance basis under section 809D
will already be within self assessment and so have an annual Self
Assessment tax return to make. There is a new box on the supplementary
'Residence and Remittance Basis etc.' pages (SA109) for such
individuals to advise HMRC of their use of the remittance basis under
section 809D. This ensures they continue to get their Personal
Allowances and the Annual Exempt Amount.
It is recognised that some individuals, in particular those on
low income, may make small cash remittances to the UK, out of foreign
income or gains, and as a result have to complete a Self Assessment tax
return possibly to pay only a small amount of tax. This is particularly
the case where foreign tax has already been paid on the income or
gains. Where an individual who is making use of section 809D remits
less than a total of £500 in cash, which arises from foreign income or
gains, into the UK during the tax year, then HMRC will accept that such
an individual does not need to make a Self Assessment Tax return simply
to pay the tax on those cash remittances. However where such an
individual is required to complete a Self Assessment tax return for any
other reason, or HMRC serves them with a notice to make a return, then
they will need to include those remittances on the return and pay the
tax due. This practice will apply for 2008-09 and subsequent years.
Individuals paying the £30,000 Remittance Basis Charge
The £30,000 charge is not a separate stand alone tax charge
but rather a charge to income tax or Capital Gains Tax on unremitted
foreign income or gains. The fact that the £30,000 constitutes income
tax or Capital Gains Tax (or a combination of the two) ensures that
individuals who remit all of their foreign income and gains to the UK
can get credit for the £30,000 against their UK liabilities. In order
to obtain that relief individuals have to make sure they make
appropriate nominations of the income or gains upon which the £30,000
The rules for nominating income and gains upon which the
£30,000 is paid, and the rules for identifying what is taxed if those
nominated income or gains are later remitted to the UK, can be complex.
To help ensure individuals who pay the £30,000 get the right level of
customer support from HMRC, we have decided that most individuals who
pay the £30,000, or have paid it in the past, will have their tax
affairs dealt with in one HMRC office from 2009-10. This will be the
CAR Residency office in Castle Meadow, Nottingham.
Customers who are sent a self assessment return by a different
office should make the return to the office issuing that return. Once
the return has been received by HMRC we will arrange for the
individualís tax records to be transferred to the CAR Residency office
in Nottingham and advise the individual and any agent, accordingly.
Until such time as individuals or their agents receive such a
notification they should continue to deal with their current tax office.
Section 690 ITEPA directions
Prior to April 2008 non-domiciled individuals and not
ordinarily resident individuals were automatically taxed on the
remittance basis on their foreign employment income. However since
April 2008 individuals have to make an annual claim to the remittance
basis. Section 690 ITEPA was amended in Finance Act 2008 to reflect
this change for not ordinarily resident employees. Prior to April 2008
employers were able to ask for a section 690 direction which permitted
them not to apply PAYE to certain employment income paid to not
ordinarily resident employees entitled to be taxed on the remittance
basis. These rules have been amended to allow this procedure to
As mentioned above, revised guidance on this has already been
published on the HMRC website
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Article Published/Sorted/Amended on Scopulus 2009-03-26 11:34:20 in Tax Articles