Income tax would then be payable by the partners. The partnership profits are allocated in accordance with the profit sharing ratio.

LLP's

Limited Liability Partnerships ('LLPs') were introduced in 2001 and offer a cross between a partnership and company structure. They were mainly introduced to offer large professional firms that trade as partnerships (accountants, lawyers, surveyors etc) the opportunity to benefit from limited liability, as a company can.

An LLP is simply a partnership, which provides the partners with the benefits of limited liability - thus ring-fencing their personal assets from any potential business creditors.

Although in general law a LLP is regarded as a 'body corporate'and is like a company, for tax purposes a LLP is normally treated as a 'partnership'.

Therefore an LLP will normally be regarded as transparent for tax purposes and each member/partner will be assessed to tax on their share of the LLP's income or gains as if they were members of a 'normal' partnership. Thus if a LLP carries on a trade then each registered partner is taxable on the income they derive from the LLP as trading income.

This is a crucial difference from being a shareholder in a company. A company shareholder is regarded as a separate entity for both legal and tax purposes. An LLP however is a separate legal entity purely in legal terms.

Therefore a company shareholder is not taxed on the profits of the company, just the cash that is extracted from the company (either as salary/benefits or dividends). A member of an LLP is however taxed on his or her share of the profits that are generated by the partnership.

For a higher rate taxpayer they would therefore pay 40% income tax on the LLP profits 9or 50% after April 2010), whereas a company may pay corporation tax at a lower rate (21/29.75/28%).

What's the problem?

There are two key problems:

Firstly, the partners will be subject to income tax at 50% as from April 2010 where their share of the profits exceeds £150,000.

Secondly, there is no opportunity to avoid tax by retaining it in the partnership. All the trading profits will be taxed on the partners as they arise - irrespective of whether the profits are retained in the partnership or not.

One option to mitigate these problems is to use a corporate partner.

Using a corporate partnership

Using a corporate partner simply means that you will use a company as one of the partners.

The corporate partner will usually be owned by the existing partners.

The benefits of using a corporate partner are:

This would then allow profits above the new 50% tax band to be allocated to the company and the 50% tax rate could be avoided. The corporate partner would be subject to corporation tax at rates between 21% and 28%.

Of course the cash in the company would need to be extracted at some point in the future and if you wanted to do this tax efficiently you could consider:

If you wanted to extract as a capital distribution you would need to wind up the company and extract the cash during the course of the winding up. The CGT rate would then be 18%. Entrepreneurs relief could be due if the company was a trading company (to reduce the effective CGT rate to 18%) however this would be unlikely to apply if the company was simply receiving a share of the partnership profits.

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Tax implications of leaving the UK

Let's start at the beginning. You'll only need to consider your tax status if you become non UK resident. So if you leave the UK to go on a short holiday there won't be any tax implications. Similarly if you leave the UK and plan never to return you'll usually be classed as non UK resident from the date you leave the UK. Lots of people may be somewhere in between these two extremes.

Some Implications of non residency

Once you lose your UK residence status, this is when you'll see the tax implications. Note that unlike in many other countries (eg Australia) there is no 'exit' charge when you leave the UK. This means that if you hold assets that have increased in value substantially since your first bought them, when you move abroad the gain won't automatically be charged.

Here's some of the key tax implications of moving overseas:

• You can sell UK assets free of CGT, provided you are overseas for a period of at least five complete tax years. So as there's no exit charge when you leave the UK, emigrating is in many ways the simplest form of tax avoidance.

  You can have assets that have substantial gains (eg property) and simply move overseas, establish non UK residence and sell them free of UK tax (subject to various conditions).

• You won't be able to make ISA contributions (although your existing ISA will retain the beneficial tax treatment).

• You need to carefully consider your position if you've made any EIS investments or have received assets subject to a gift relief claim.

  The EIS scheme allows individuals to defer paying CGT on the disposal of any asset when they reinvest some of the proceeds into shares qualifying under the EIS scheme. Great -- but the downside is that if you then become non UK resident within (usually) three years the deferred gain is charged to CGT again.

  Similarly gift relief can be used to transfer business assets between individuals free of CGT. The gain is then deferred until the asset is eventually sold. However if you have received an asset from someone and you've both claimed gift relief, the gain can also be charged if you become non UK resident within a period of six years.

  So you need to be careful if you've got deferred gains under either the EIS scheme or gift relief.

• Any assets that are used for the purposes of a trade are likely to still be within the UK tax charge. The CGT exemption for non UK residents doesn't apply if the assets are used for the purposes of a UK branch or agency trade.

  So you couldn't for example continue to run a sole trader business from abroad and then hope to sell up free of CGT.

  However, this doesn't apply if you're using a company and are planning to sell the shares. In this case the shares are effectively an investment asset and you can sell them as a non resident free of CGT.

  If the company was a UK company and was itself looking at disposing of the trade or assets the fact that the shareholders were non UK resident would not prevent the company from being charged to corporation tax on the gain realised. As such if you own a business and are looking at selling it as a non resident you may want to consider transferring it to a company first (known as 'incorporation') to obtain the CGT exemption on disposal.

• If you own an offshore company you need to be careful. We stated above that the exit charge does not apply when an individual ceases to be UK resident. However, this does not apply to companies. The only way that a company could cease to be UK resident would be if:

  It was a foreign registered company that was controlled from the UK (ie UK resident), and then subsequently transferred its control overseas.

  In this case the company would be deemed to have disposed of and immediately reacquired the assets that it held - crystallising the gains and subjecting them to corporation tax. So if you do own a foreign registered company that you control from the UK transferring its control overseas should be carefully considered.

• If you are subject to CGT you can still claim the annual CGT exemption.

• If you're selling a former home and aren't exempt from CGT (eg if you remain non UK resident for less than five years) you can still claim PPR relief in full or part to reduce the gain

• When you move overseas you will be exempt from UK income tax on your overseas income.

• You'll get the full personal allowances etc in the tax year that you leave therefore you may be entitled to a tax repayment if excess tax has been deducted under PAYE

• If you leave the UK permanently or have gone to work overseas you should be able to establish non residence on the split year basis. This means that you'll only be UK resident for the period of the tax year prior to your departure -- after this you'll be non resident. As this is only a Revenue concession it's probably not wise to rely on this too heavily though (eg I'd wait until the tax year after you left before extracting a substantial dividend from a company- if possible).

• If you're working overseas full time you should be able to get an 'NT' (No tax) code.

• Once you're non resident you can claim income from various UK sources free of income tax (eg bank interest can be received gross if you're non UK ordinarily resident).

• If you're renting out property you will be subject to the non residents landlord scheme

• If you have UK royalties, you may be subject to a UK withholding tax

• You can then look at any relevant double tax treaties if you're a non UK resident and are clearly a resident of the overseas country (and can back this up with a certificate of tax residence). For example you could consider using a double tax treaty to reduce the rate of UK tax withheld on any UK royalties.

  So there you have it -- some of the tax implications you should bear in mind when you leave the UK.

  
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  Making a statutory declaration to establish non UK domicile

  Posted By :
  Posted At : Friday, Feb 26, 2010
  
  If you leave the UK, you may well be looking to avoid Inheritance tax. One of the best ways to achieve this is to lose your UK domicile status.

  As regular readers will know, if you're a UK citizen 'born and bred' you will be likely to have UK domicile of origin. In order to lose this you will need to establish a domicile of choice overseas.

  This is a combination of actually having your chief residence overseas and having the intention to remain there for the rest of your days.

  Establishing your intention is a matter of fact and the Revenue/courts would be likely to look back at your life and attempt to infer your overall intentions.

  Your expressed intentions are not conclusive as the courts would look at your actions to determine your intention, not your statements (ie you would need to act as though you wanted to live overseas forever rather than simply saying that your intention is to reside permanently overseas).

  Nevertheless your express statements are certainly taken into account, and therefore if you do wish to lose your UK domicile by establishing an overseas domicile of choice, making a statement to this effect can be persuasive.

  One of the preferred ways of making such a statement is by making a statutory declaration. It's more formal than a simple deed and would need to be notarised (eg by a solicitor). When taken with other evidence that actually supports your overseas domicile it can be highly advantageous in persuading the Revenue that you established a non UK domicile of choice. A sample statement showing the kinds of things that could be covered is shown below.

  Sample Statutory Declaration I XXX [NAME] of XXX [ADDRESS]

  DO SOLEMNLY AND SINCERELY DECLARE as follows:-

  I absolutely and entirely renounce relinquish and abandon my domicile of origin, established in XXX [ENGLAND, WALES, SCOTLAND, NORTHERN IRELAND] and assume adopt and determine to take my domicile of choice in XXX [OVERSEAS COUNTRY] in substitution for my former domicile of origin in XXX [ENGLAND, WALES, SCOTLAND, NORTHERN IRELAND].

  I consider my domicile to be hereafter [OVERSEAS COUNTRY] on the following basis:

  XXX [BRIEF HISTORY OF THE REASONS TO SUPPORT THE OVERSEAS DOMICILE OF CHOICE]

  I shall at all times hereafter in all records deeds documents and other writings and in all actions proceedings as well as in all dealings and transactions on all occasions whatsoever use my domicile in [OVERSEAS COUNTRY] in substitution for my former domicile in XXX [ENGLAND, WALES, SCOTLAND, NORTHERN IRELAND] so abandoned as aforesaid.

  I authorise and require all persons at all times to hereafter designate and describe my country of domicile as[OVERSEAS COUNTRY] and not my previous domicile in XXX [ENGLAND, WALES, SCOTLAND, NORTHERN IRELAND]

  AND I make this solemn Declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act 1835.

  SIGNED AND DECLARED at XXX

  in the County of XXX

  this day, the XXX of 2007

  Before me

  Solicitor/Commissioner for Oaths

  
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  Non Doms and the de minimis limits

  Posted By :
  Posted At : Friday, Feb 19, 2010
  
  

  In this article we look at a couple of limits that HMRC apply in practice to non doms. Note that you won't find any of these limits in the tax legislation.

  These are applied by HMRC purely as a matter of practice. However, these practices have been published and as such can be relied upon by taxpayers.

  Unremitted income and gains of less than £2,000

  We've reported in other articles that where a non dom has total unremitted foreign income and gains of less than £2,000 in any tax year, they can use the remittance basis without having to make a formal claim each year by submitting a Self Assessment tax return. The advantage of this is no loss of the UK Personal Allowances or their Annual Exemption and no requirement to pay the £30,000 remittance based tax charge ('RBC').

  Note that this exemption applies to unremitted income or gains of less than £2,000. So you could have overseas income of £10,000, and remit £8,500. Your unremitted income would then be less than £2,000 and you wouldn't need to pay the £30,000 tax charge and could still offset your UK personal allowance. However, in this case you're still taxable on any foreign income or gains remitted to the UK. Remittances can be in the form of cash, assets or services enjoyed in the UK.

  So in the example above the £8,500 remittance would be taxed in the UK and would need to be included on a self assessment tax return.

  If you weren't currently within the self assessment regime you'd need to file a return reporting the remittances (and paying tax on them).

  But what if you were only remitting a small amount and have no other taxable income?

  HMRC have made provision for small cash remittances to the UK to be free of tax and also free of reporting requirements.

  The idea is to help people on low incomes and to ensure that they don't need to complete a tax return just to show the remittances where only a small amount of tax is due.

  So they have said that where the £2,000 exemption applies if an individual remits less than a total of £500 in cash, which arises from foreign income or gains, into the UK during the tax year, they will accept that the individual does not need to make a Self Assessment Tax return simply to pay the tax on those cash remittances.

  This means that an individual could have unremitted income of £2,498 and remit £499 without there being a tax charge, requirement to file a UK tax return or loss of the UK allowances/requirement to pay the £30,000 RBC.

  This can be doubled for a couple.

  Note though that the ability not to disclose it on a return only applies if the individual would not otherwise need to file a return. If they would need to file a tax return anyway they would need to include the remittances on the return and pay the tax due.

  Establishing non domicile by a transfer to a trust

  For any non doms leaving the UK and looking to establish non UK domicile status, the options for getting HMRC's agreement during your lifetime are limited.

  A common way to get HMRC to consider your domicile status is to wait 3 tax years after leaving the UK and then make a transfer of overseas assets to an offshore trust. If you're a non dom there would be no inheritance tax (as the transfer would be of excluded property).

  An individual who transfers cash to an offshore trust and who considers they are non UK domiciled aren't required to submit an Inheritance Tax account to HMRC (as if the settlor is non-UK domiciled no Inheritance Tax is due).

  However, if they do file an Inheritance Tax account (IHT 100) HMRC may then consider the settlors domicile status. Once established it will apply for income tax and CGT purposes as well. Note though that any significant lifestyle changes by the individual could impact on his domicile status and could result in HMRC reconsidering the individuals domicile status.

  However when considering whether to look at an individuals domicile status HMRC will continue its existing practice and only open an enquiry into the 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.

  So for the current year if you had the full nil rate band available you'd need to be transferring just above £375,000. After the £325,000 nil rate band you'd have £50,000 chargeable to IHT, with the IHT charge at 20% on lifetime transfer coming in at £10,000.

  
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  Interesting case on UK residence

  Posted By :
  Posted At : Thursday, Feb 11, 2010
  
  This is a very interesting case that was held before the Special Commissioners and then appealed to the high court relating to whether a pilot was non UK resident or not.

  Facts

  The taxpayer was a British Airways pilot and received income from that employment which was paid into his bank in the UK.Key points are:

• He was born in South Africa and regarded himself as domiciled in South Africa (ie a non dom). He travelled on a British Overseas Citizens passport which he renewed in October 1998.

• He had been living in the UK since 1986. He had purchased a house in South Africa in 1997 but retained a house in UK for use before and after flights.

• He claimed that he had departed from the UK in 1997 to live outside the UK permanently and that thereafter he was not resident in the UK.

• He had removed the centre of his life to South Africa in 1997 since when he had kept his visits to the UK to a minimum. He had relatives in South Africa. His former wife lived in the UK with their children but he saw them very rarely.

• He kept private aeroplanes in South Africa and did no private flying in the UK.

• He had retained a house in the UK as an investment but could have stayed in hotels. He did not agree that the South African house was in the nature of a holiday home.

• His visits to the UK were short and only on three occasions in the relevant period were they longer than seven days. He argued that he was a temporary resident in the UK and that he had not spent more than six months in aggregate in the UK during any of the years in question.

  The Revenue argued that he was a Commonwealth citizen who had been ordinarily resident in the UK and that in the absence of a distinct break, any periods of residence abroad were to be treated as for the purpose only of occasional residence abroad.

  The Commissioners Decision

  The Commissioner sided with the Pilot and taking into account all the evidence and the facts found, especially having regard to the his past and present habits of life, the reasons for his visits to the UK, the temporary nature of his ties with the UK, the more permanent nature of his ties with South Africa, and the distinct break made in 1997, the conclusion was that from 1 September 1997 he ceased to be resident and ordinarily resident in the UK.

  After that date the UK was neither where he dwelt permanently nor where he had his settled or usual abode which was in South Africa. Residence in the UK did not have a settled purpose and the taxpayer was not ordinarily resident in the UK.

  They found that all the factors pointed to the conclusion that after September 1997 the taxpayer was in the UK for temporary and occasional purposes only. There is a specific statutory provision in S336 ICTA 1998 which provides that person in the UK for only a temporary purpose with no intention of establishing residence here would not be taxed on foreign salary income.

  You would think that this is pretty much in accordance with the current rules on residence, but when it went to the High Court the judge sided with HMRC and overturned the Commissioners decision.

  High Court Decision

  One of the key issues was that the High Court found he was not a temporary resident in the UK.

  They said that the adjective 'temporary' was descriptive of the taxpayer's purpose, i.e. the reason why he was in the UK. So the question for the special commissioner was whether the reason for the Pilots presence in the UK was casual or transitory.

  He had been in the same employment since 1987, and had thus been in that employment for a decade before the first of the relevant years of assessment.

  Performance of his duties under his contract of employment was part of his settled pattern of life. Presence in the UK in order to fulfil duties under a permanent (or at least indefinite) contract of employment could not be described as casual or transitory.

  Standing in any of the tax years the objective observer would have known that the taxpayer would continue to be present in the UK to fulfil those duties in subsequent years, unless and until he changed jobs or retired. The recurrent nature of his regular presence in the UK led to the conclusion that his purpose for being here was not casual nor transitory and therefore not 'temporary'.

  In addition the Judge held that there was no 'distinct break' in the pilots life when he set up home in South Africa. This was based on the fact that the Pilot had retained the house which remained furnished; continued the same employment both before and after the supposed distinct break, and continued to be present regularly in the UK for the purposes of that employment in the very same house that had been his only home.

  All that happened after he set up home in South Africa was that he acquired another home there. From being a man who resided in one place, he became a man who resided in two.

  They therefore found that the Pilot was UK resident for the period in question.

  This case therefore reinforces the nature and extent of ties to the UK.If you have regular and pretty fixed return visits to the UK you should carefully review your residence status. You'll find it more difficult to argue that you are only a 'temporary resident' and may be caught under the provisions that treat your absence as just 'occasional residence abroad' unless you can show a distinct break with the UK.

  
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  Directors moving abroad and double tax treaties

  Posted By :
  Posted At : Thursday, Feb 04, 2010
  
  Directors moving abroad should ensure that they carefully consider their tax status. The terms of double tax treaties in particular can have a big impact on how directors are taxed.

  At the outset it's important to differentiate between company directors in their capacity as an officer of the company and other directors who are directors in name only.

  Company Directors are legal officers of the company, however companies frequently give employees the title 'Director' without them actually being 'Company Directors'.

  Directors are essentially taxed as employees of the company. Therefore a UK resident Director is subject to income tax on his worldwide income. This applies irrespective of the residence of the company that the Director works for.

  What about Directors going overseas?

  Directors of UK resident companies may decide to live and work overseas. When they leave the UK they will cease to be UK resident and outside the scope of UK tax on overseas income. UK income would however still be within the charge to UK income tax.

  One of the good tax reasons why Directors move overseas is to avoid income tax on their salary but still obtain a UK tax deduction on any salary in the UK company.

  Directors who go overseas will frequently look to double tax treaties to assess how this will impact on their taxes.

  Many double tax treaties have a specific article on 'Directors fees'. These state that a resident of one country who is a director of a company which is a resident of the other country may be taxed in that other country on his fees.

  Directors' fees are the income which arises to a Director in his capacity as a member of the Board of Directors. This therefore provides that both countries can tax the Directors fee. They would then look at claiming double tax relief under the treaty to prevent double taxation.

  Other earnings of a Director (ie in his capacity as an employee) are subject to a different article in the treaty. The dependent personal services (employment) article would apply to this income.

  In a few agreements there is no separate Directors' fees Article but a provision on similar lines is incorporated in the dependent personal services Article.

  This Article states that income, derived by a resident of one country, is taxable only in that country unless he exercises his employment in the other country. If he does, then the other country can tax so much of his earnings as is derived from the exercise of his employment in that country.

  So the general rule is that as for Directors fees above both the country of residence and the country where the company is located could tax the Directors employment income.

  Under agreements which follow the current OECD Model convention, the Director escapes tax in the other country (that is, the country in which the employment is exercised) if he fulfils all four of the following conditions:

  a. he is not a resident of the other country for the purposes of the agreement under which the claim is made for the period of the claim, and
  b. he is present in the other country for a period or periods not exceeding in the aggregate 183 days in any continuous period of twelve months
  c. his earnings are paid by an employer who is not a resident of that other country, and
  d. his earnings are not borne by a permanent establishment or fixed base which the employer has in the other country.

  Directors going overseas frequently look to extract cash as a salary and get a dual tax benefit of a tax free salary and a tax deduction in the company.

  In order to get a salary free of tax the Director would need to carry out the employment overseas and be non UK resident.

  Therefore fees in a capacity as a UK Director would be taxed as above and would remain subject to UK income tax. However, provided the duties that the Director actually carried out as an employee were overseas there would be no UK tax. If the duties were UK duties you would then look at the double tax treaty position above to assess where tax would fall.

  Tax deduction in the company

  The other issue is the tax deduction in the company. The company obtains a corporation tax deduction for all expenses incurred 'wholly & exclusively' for the purposes of the trade. Therefore providing the payment to the Director is a genuine employment for services that he provides to the company it should be allowable. The fact that the Director is non resident would not impact on this providing the company obtained a trading benefit from the salary (eg negotiating overseas orders etc).

  
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  50% tax rate and the remittance basis

  Posted By :
  Posted At : Friday, Jan 29, 2010
  
  This was the headline grabbing change in the 2009 Budget As from April 2010 there is a 50% income tax rate on anyone earning over £150,000. It was originally announced as a 45% tax rate in the 2008 Pre-Budget Report but the Chancellor increased it to 50% in the April 2009 Budget.

  He has also brought the tax increase forward as the 45% tax rate was not due to be implemented until 6 April 2011, whereas the 50% tax rate will apply from 6 April 2010.

  So as from 6 April 2010 we will end up with:

• 20% tax for income within the basic rate band
• 40% tax for income in the higher rate band but below the new super tax band (for example, £37,400 - £150,000) .
• 50% tax for income above £150,000. For high-income earners this would be coupled with the loss of personal allowances (worth an additional £6,475 for 2010/2011).

  Dividends

  From April 2010 there will be three tax rates for dividends:

• Dividends within the basic rate band will be taxed at 10%.
• Dividends within the higher rate band but below the new super tax band (eg £37,400 to £150,000) will be taxed at 32.5%.
• Dividends above £150,000 will be taxed at a new income tax rate of 42.5%. Note that these tax rates apply to gross dividends, so you will be able to offset the 10% tax credit when calculating the actual income tax you have to pay.

  This means that the effective income tax rates on dividends will be 0%, 25% and 36.1% respectively.

  The 36.1% rate is calculated as follows:

  Net dividend £90
  Grossed up to £100
  Income tax at 42.5% £42.5
  Less tax credit £10
  Income tax payable £32.5
  
  Effective income tax rate = £32.5/£90 = 36.1%

  How Will these New Tax Rates Affect Non-Doms?

  The above rules apply to non-doms in the same way as other UK residents.

  Therefore non-doms who have taxable income above £100,000 will see their personal allowance restricted/withdrawn and anyone earning over £150,000 will need to pay the new income tax rate of 50% or 36.1%.

  Non-doms with overseas unremitted income should take these new rules into account when deciding whether to claim the remittance basis or the arising basis.

  If for instance you will be subject to the 50% income tax rate because you have a high UK income and you have substantial overseas investment (non dividend) income you would have a choice of either:

• Claiming the remittance basis and paying the £30,000 tax charge. You could then keep the income abroad to avoid UK tax. There would be no loss of the UK personal allowance as it would have been taken away anyway because you have income well above £100,000.

• Opting for the arising basis and paying income tax at 50% on the overseas income.

  The fact that you would now be paying UK tax at a much higher rate and that filing a claim for the remittance basis would not cause you to lose your personal allowance would certainly affect your decision.

  We've already seen in other articles that for 2009/2010 if you are a higher rate taxpayer you should claim the remittance basis if your overseas unremitted income is above £81,475. This is because at this point the loss of the personal allowance and the saving of tax at 40% would cover the £30,000 remittance tax charge.

  However for 2010/2011 if you're paying tax at 50% there would be no loss of personal allowance to take into account. In this case if you had overseas unremitted income of £60,000 or more this may make claiming the remittance basis more attractive due to the higher rate of tax. (ie 50% * £60,000 = £30,000).

  
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  Timing issues for non doms arriving in or leaving the UK

  Posted By :
  Posted At : Friday, Jan 22, 2010
  
  For most people arriving in or leaving the UK they'll be looking to claim the benefit of the split year basis. This means that:

• For non doms leaving the UK they'll only be UK resident up until their date of departure, and

• For non doms coming to the UK they'll only be UK resident as from their date of arrival.

  The split year basis isn't set out in the legislation but is given by virtue of Extra Statutory Concession (ESC) A11. Broadly speaking anyone leaving the UK will get the benefit of the ESC if they leave permanently or under a full time contract of employment.

  The key benefit of being treated under the concession as opposed to under the general rules is that you can be non resident for a specific part of the tax year. The main advantage in this is that foreign income is then free of UK income tax.

  For any non doms who are leaving the UK (or arriving in the UK) they may be looking to take advantage of the £2,000 exemption. This ensures that provided unremitted income or gains are less than £2,000 there is no loss of UK allowances or requirement to pay the £30,000 tax charge.

  However when considering whether the 'below £2,000 threshold' limit applies the level of unremitted foreign income and gains for the entire tax year must be taken into account.

  So just because you left the UK and your income after you left was free of UK tax this would not mean it wouldn't be included when assessing whether you had £2,000 of unremitted income.

  Similarly if you arrive in the UK,your overseas income before you were UK resident, although free of UK tax would be taken into account when looking at whether you had exceeded the £2,000 level.

  Example

  Patrick arrives in the UK on 25 October 2010, and he is resident for the tax year 2010-11. He claims split-year treatment under ESC A11.

  He has foreign bank interest for the period 6 April to 24 October 2010 totalling £2,400. He has further bank interest of £1,100 arising between 25 October 2010 and 5 April 2011. He remits £1,000 to the UK in that year.

  At the end of the year his total unremitted foreign income is £2,500. Even though he's claimed split-year treatment for 2010-11, he still has to include any foreign income that arose before he entered the UK.

  In this case Patrick could remit the £2,400 free of UK income tax, given this arose before he was UK resident. However, it's likely this would be classed as a mixed fund in this case. As such he'd be classed as remitting the £1,100 taxable bank interest before the £2,400 tax free 'capital'.

  Capital Gains

  Similar principles apply to capital gains of any non doms coming to or leaving the UK. In order to claim the £2,000 exemption unremitted gains must be less than £2,000.

  However the relevant ESC (D2) states that an:

• individual arriving in the UK who has not been resident or ordinarily resident in the UK for five years before the year of arrival is not chargeable on capital gains made between the start of that tax year and their date of arrival

• An individual leaving the UK who was not resident and not ordinarily resident in the UK for at least four out of seven years before the year of departure is not chargeable on capital gains made between the date of departure and the following 5 April

  However just as for income tax purposes above you still need to include capital gains that arise in the 'non resident' part of any split year when looking at the £2,000 exemption.

  £30,000 tax charge

  When looking at the £30,000 tax charge you include any year of departure or arrival as a complete tax year.

  The £30,000 tax charge only applies to UK residents who have been resident for at least 7 of the last 9 tax years. Therefore this means that:

• When assessing the number of tax years you've been in the UK for the £30,000 tax charge you include any tax years you were UK resident for part of the year. So if you arrived in the UK partway through a tax year you would still include it.

• Similarly the £30,000 charge isn't split even if you leave the UK partway through a tax year and claim the remittance basis.

  So if you are liable to the £30,000 tax charge and have substantial overseas investment income you may well claim the remittance basis. If you left the UK half way through the tax year to move abroad you would still be subject to the full £30,000 tax charge.

  
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  Is it still worthwhile claiming the UK personal allowance as a non resident?

  Posted By :
  Posted At : Thursday, Jan 14, 2010
  
  The ability of non residents to claim the personal allowance will be significantly reduced as from April 2010. However, even where it can still be claimed is it necessarily worth claiming it?

  Before April 2010 someone who is a British or Commonwealth citizen or who is a resident of a relevant treaty country can claim the UK personal allowance.

  This is currently worth £6,475 per person. The personal allowance provides for an exemption from tax on income that it covers. In the case of a couple, this can therefore provide for UK income of around £12,950 to be exempt from UK income tax.

  However, in the 2009 Budget the Chancellor announced that claiming personal allowances solely by being a Commonwealth citizen was not compliant with the Human Rights Act.

  They will therefore include a provision in the 2009 Finance Act to withdraw the entitlement for non-resident individuals who currently qualify for UK personal allowances and reliefs from income tax solely by virtue of being a British or Commonwealth citizen. The withdrawal will apply from 6 April 2010 and will apply to:

• basic and age-related personal allowances,
• married couples' allowance,
• blind person's allowance and
• relief for life assurance

  There still though a number of cases when you can still claim the personal allowances as a non resident. The main one is that you qualify under the terms of a double tax treaty.

  What impact will this change have?

  It will only be a cause for concern if you're currently a commonwealth citizen, with UK income who does not otherwise qualify.

  In particular most double tax treaties will provide for a UK personal allowance if you're treaty resident abroad.

  It will therefore mainly effect UK emigrants who live in countries that don't have a tax treaty with the UK such as:

• The Bahamas;
• Cameroon;
• Costa Rica
• Cook Islands;
• Dominica;
• Maldives;
• Mozambique;
• Nauru;
• Niue;
• St Kitts & Nevis
• St Lucia;
• St Vincent & the Grenadines;
• Samoa;
• Tanzania;
• Tonga;
• Turks & Caicos Islands
• Vanuatu.

  Even if you are entitled to claim the UK personal allowance you should in any case consider whether it's worthwhile claiming it. For non residents it's generally worth tax savings of around £1,300.

  However to take advantage of this you would need to claim the personal allowance in your UK tax return. This would therefore be a claim just like all other claims and could necessitate a review of your non residence status. If you have limited UK income in some cases it may simply be preferred not to claim the personal allowance and suffer the 20% income tax.

  Even if your UK income is subject to basic rate tax at source it is questionable whether it's always worthwhile claiming the personal allowance.

  If a claim is made this will be dealt with by the Centre for Non Residents. They may then look to consider your residence status in detail to assess whether you are truly non resident. This could prove an inconvenience and the Revenue may also be bound under the terms of an exchange of information treaty to provide details they discover to the overseas tax authorities.

  Many non residents will prefer the additional privacy and reduced disclosure that goes with not claiming the personal allowance.

  It's worth noting that in terms of the tax return you only generally need to enter details of the country of residence only where you are claiming the UK personal allowance or if you were looking to claim double tax relief. If not, you would not need to provide details of your new overseas country of residence.

  
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