Reforms For Taxation of International Individuals

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17 June 2011

The Government's proposed reforms to the taxation of non-domiciled individuals and statutory residence test have been published today. 

The proposals are welcome news for international individuals, making the UK a more attractive place to invest by removing tax charges and providing more certainty of tax treatment. 

In the Budget earlier this year the Government said it would consult on three specific proposals for the reform of the remittance basis of taxation applying to individuals and on the introduction of a statutory residence test.  The consultation documents have been published today and, subject to any changes made during the consultation period, the tax changes and residence test are to take effect from April 2012. 

Tax reforms

Commercial investment exemption

Where a non-domiciled individual remits foreign income or capital gains to the UK for investment in UK businesses, it will not be treated as a taxable remittance. 

Investments can be made in companies which are trading or carrying on certain investment activities (such as investing in commercial property), by buying shares in or making loans to companies.  Investment in some listed companies is also being considered.  Individuals can work for and receive remuneration from the company without losing the exemption.  There are no maximum or minimum threshold amounts to be remitted.

Excluded from the investment exemption are:

(a) Holiday lets

(b) Residential property (but "commercial" residential such as nursing homes will be permitted)

(c) Leasing and personal services

We were initially concerned that agricultural property would not be permitted, but the government does not propose to exclude this.  This may be particularly attractive as it will also be free of inheritance tax.

The income generated from the investment will be taxed in the usual way.  This suggests that it may be possible to use non-UK companies to make the investment into the UK, dividends from which will then themselves benefit from the remittance basis.

Investment via offshore trusts and companies will be permitted.

However, partnerships and other entities other than companies will not be permitted.

The money must be taken back out of the UK within 2 weeks of when the investment is disposed of.

There will be anti-avoidance rules to prevent personal benefit from the investment and to prevent recycling into existing businesses.

There will be some disclosure requirements but these will be kept to a minimum

Remittance basis charge

As previously announced, the remittance basis charge will increase to £50,000 for non-domiciliaries who have been resident in the UK for at least 12 of the 14 tax years immediately preceding the year for which the remittance basis claim has been made.  (In other circumstances the £30,000 charge remains after being resident for at least 7 of the previous 9 tax years).

Technical simplifications

Some of the current tax rules are being simplified to remove undue administrative burden:

(a) Nominated income (i.e. the income nominated to bear the £30k/£50k charge)

It is proposed to allow up to £10 of nominated income to be remitted to the UK without a tax charge.  While this may seem a small amount, many individuals only nominate £1 of income for the purposes of the £30k (and now £50k charge anyway).  So this will prevent inadvertent remittances of nominated income.

(b) Foreign currency bank accounts

It is proposed to remove all foreign currency bank accounts (FCBAs) from the scope of CGT.  This would apply both to domiciliaries and to non-domiciliaries and is a welcome and comprehensive simplification.  Some anti-avoidance rules may be needed.

(c) Sale of chattels in the UK

The existing rules will be amended to permit chattels (bought with foreign income or gains) to be brought to the UK and sold, provided the proceeds are sent back out of the UK within 2 weeks.

(d) Legislating SP 1/09

The government will, as previously promised, legislate the temporary practice which has been available since 2009 allowing employees with split UK/non-UK duties to have their salary paid into a single bank account.

No further changes for the rest of this Parliament

The consultation reaffirmed that there would be no further changes for the remainder of this Parliament.

Statutory residence test

  1. The proposed new statutory residence test falls into three parts.
  2. Part A contains rules which will automatically make someone non-resident.  Arrivers[1] who spend fewer than 45 days in the UK or leavers who spend fewer than 10 days in the UK, will automatically be non-resident.
  3. Part A has precedence.  If it doesn't apply then Part B contains rules conclusively making a person resident.  Briefly, this will apply to those who spend more than 183 days in the UK; those whose only home(s) (including rented property) are in the UK; and those who carry out full time (more than 35 hours a week) work in the UK.
  4. For those who don't fall into either Part A or Part B, Part C contains a list of "connecting factors" which will affect the number of days a person can spend in the UK.  These are:

(a) Family in the UK

(b) Accommodation in the UK

(c) Substantive work in the UK

(d) More than 90 days presence in the UK in either of the previous 2 years

(e) More time in the UK than in any other single country

The lower the number of connecting factors, the more days a person will be allowed to spend in the UK.  There are separate proposed scales for arrivers and leavers.

The government does not propose any transitional rules, but are consulting on this.

The government also proposes to reform ordinary residence.  The benefits of this are likely to apply only to non-domiciliaries who are also not ordinarily resident.


These two consultation documents arise from a lot of work which has already been done behind the scenes.  Many consultations in the past have suffered from asking the wrong questions or anticipating only the answers which HMRC wanted.  The government announced that it was committed to a new process of tax policy making, involving pre-consultation with interested bodies and these two consultations are among the first results of that.  While a number of questions remain to be answered, the overall shape of the policy changes generally looks to be positive and will provide welcome relief for those with international elements to their affairs.

Through John Barnett's role on the consultative committees dealing with these reforms, Burges Salmon has been working closely with HM Revenue & Customs on the proposals, and will continue to do so during the consultation.  For more information on how the reforms may affect you or your clients, please contact: 

John Barnett on +44(0) 117 902 2753 or

Beatrice Puoti on +44(0) 117 902 2765 or 

[1] Those who haven't been resident in the UK in any of the previous 3 years

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