• New Rules under UK Finance Act 2008 May Require Action before April 6, 2009 for Certain US Taxpayers
  • April 7, 2009
  • Law Firm: McGuireWoods LLP - Richmond Office
  • New rules under the UK Finance Act 2008 may affect access to the remittance basis of taxation for US taxpayers who are non-domiciled UK residents (i.e., individuals who are resident in the UK, but who are not domiciled or not ordinarily resident in the UK). Under the remittance basis of taxation, individuals are taxed on income and gains arising in and remitted to the UK but not on foreign income and gains remaining outside the UK.

    Under the new rules, non-domiciled UK residents meeting certain threshold requirements who wish to access the remittance basis of taxation must make a claim for the remittance basis. Additionally, non-domiciled UK residents who wish to access the remittance basis and who have been resident in the UK for at least seven of the previous nine years must pay an annual remittance basis charge of £30,000. If the remittance basis is not claimed, non-domiciled UK residents will be subject to tax on worldwide income and gains in the same manner as domiciled UK residents (i.e., on the arising basis).

    Claiming the remittance basis is optional and is made on an annual basis. Therefore, non-domiciled UK residents who may be subject to the remittance basis charge should consider whether in a particular year it is more beneficial to claim the remittance basis and pay the £30,000 charge, or whether it is more beneficial to pay tax on worldwide income and gains. Non-domiciled UK residents do not need to claim the remittance basis until filing their 2008/2009 UK tax returns (i.e., January 31, 2010 for most individuals). However, because US income-sourcing rules may affect the treatment of income earned since April 6, 2008, US taxpayers who are non-domiciled UK residents should consider whether they will claim the remittance basis before filing their 2008 US tax returns.

    For additional information on how these changes may affect non-domiciled UK residents, please see a detailed explanation of the UK Finance Act 2008. HM Revenue and Customs has provided a flowchart to assess whether a UK resident may be subject to the remittance basis charge. Further information on claiming the remittance basis and the remittance basis charge may also be accessed on the HM Revenue and Customs website.