Following the Pre-Budget Report announcement that HMRC would be reviewing the rules on residence, HMRC have issued some draft legislation which is expected to take effect from 6 April 2008.

The tax treatment and conditions that need to be satisfied for an individual to be non-resident and/or non-domiciled are complex. The aim of the proposed legislation is to ensure that individuals contribute in respect of the foreign income and gains which they keep abroad and on which they currently do not pay UK tax.

The proposed legislation includes:

• amending the residence rules, so that days of arrival and departure to and from the UK will count towards establishing residence
   
• individuals who are resident (but not domiciled or not ordinarily resident) will generally have to make a claim to be taxed under the favourable remittance basis. There will be an exception to this rule where the unremitted foreign income and gains are less than £1000.
   
• individuals who are taxed on the remittance basis will not be entitled to the personal allowance or capital gains tax annual exemption, and
   
• individuals who are resident (but not domiciled or ordinarily resident) for  longer than seven out of the past 10 years will only be able to use the remittance basis of taxation on payment of an annual charge of £30,000. This charge will not apply where unremitted foreign income and gains are less than £1,000.

HMRC confirm that the legislation is draft at present and should be regarded as ‘work in progress’.

If you are potentially affected by these rules or have any questions or concerns please do get in touch.