Using the exemptions to avoid remitting income after April 2008

As is well known Non UK domiciliaries who are taxed on the remittance basis are only taxed to the extent that income or gains are remitted to the UK.

Therefore any cases where income or proceeds can be brought into the UK without being classed as a 'remittance' will clearly be advantageous.

One of the key occasions this will occur is where the assets remitted fall within the 'exempt property' rules. These rules have been fleshed out in the new finance bill. If any remittances fall within the exempt property rules they won't be taken into account when calculating UK tax on remitted income and gains.

There are three key occasions when remittances can be classed as exempt for this purpose.

Firstly an asset is exempt property if it meets the public access rule concerning works of art and collectors' pieces. Such an asset can be purchased from overseas income, salary or capital gains. For most people this won't be relevant and therefore it's not been considered in this article.

Secondly clothing, footwear, jewellery and watches purchased out of foreign income are exempt property if they meet the personal use rule.

Thirdly property of any description purchased only from foreign income is exempt property if the 'notional remitted amount' is less than £1,000, the property meets the temporary importation rule, or it meets the repair rule.

It will be these latter two that are of most practical use for readers. Note though the key difference between category (1) and categories (2) and (3). Category (1) assets are exempt whether they're purchased out of overseas income, salary or capital gains.

By contrast if you are looking at qualifying for the exemption under (2) or (3) it would need to be purchased out of foreign income. If it's purchased out of capital gains or certain forms of overseas salary income it would be classed as remitted when the property was brought into the UK.

It's also worth noting that 'property' in this context refers to an asset and not cash. So if you brought cash of £999 into the UK you couldn't take advantage of the £1,000 exemption. However if a small asset was brought in that was valued at £950 it may well qualify.

The finance bill provides that clothing, footwear, jewellery and watches meet the personal use rule if they are property of a 'relevant person', and are for the use of a 'relevant individual'.

It then goes on to define 'relevant person' and relevant individual on the basis of the rules that apply to the alienation of overseas income or assets. This means that a relevant person includes not only the non domiciliary but also his spouse (or co-habitee) and children and grandchildren aged under 18.

So you can gain the exemption for remittance of personal effects that are purchased out of overseas income providing it's used for you or your wife/minor children's/minor grandchildren's personal use. There could therefore be opportunities to purchase watches and Jewellery for these individuals from overseas income and bring them to the UK without crystallising a UK tax charge on remittance.

It should be noted though that there are provisions that apply so that property which ceases to be exempt property is to be treated as remitted to the UK at the time it ceases to qualify.

The finance bill specifically states that one situation where property ceases to be exempt property is where the property is sold while it is in the UK. As a result a remittance is treated as arising at the point the asset is sold.

If therefore you were looking at using overseas income to purchase jewellery etc it would be important that this was not sold whilst in the UK.

There could also be a remittance if the asset (eg Jewellery) stopped being used for personal use.

£1,000 exemption

Any asset that is brought into the UK is subject to a de minimis limit of £1,000 before it's classed as a remittance. To qualify for this the 'notional remitted amount' needs to be less than £1,000.

The finance bill defines the "notional remitted amount" in relation to property as the amount that would be treated as remitted to the UK if the exemption did not apply. This will usually be the market value of the asset remitted although clearly limited to the overseas unremitted income if less.

There are provisions to counteract artificially splitting expensive sets. Eg a pair of Statues which would be worth considerably more as a pair than on their own. In this case when assessing the value of the asset remitted you consider its share of the value of the entire set and not just the value of the remitted asset in isolation.

Repair Rule

Property of any type is not classed as remitted if it meets the repair rule. Property meets the repair rule if it is either in transit from or to a place outside the UK and UK premises used for repair or restoration, or in storage at such premises, or under repair or restoration.

This ensures the property remains exempt only whilst in transit between somewhere outside the UK to or from the repairer or restorer, in storage at their premises or actually undergoing repair or restoration.

So you can bring property into the UK for repairing without it being classed as a remittance of the overseas income used to purchase the asset.

Temporary Importation Rule

Property that is brought into the UK temporarily will not be classed as remitted. To qualify it needs to be here for a total of 275 or less qualifying days.

Note that those 275 days are the maximum number of days property can be in the UK, not the number of days allowed each year.

If you bring overseas property into the UK which qualifies under the repair rule or temporary importation rule and it then ceases to qualify (for whatever reason) this would be classed as a remittance at that date (unless another rule, such as the public access rule applied from that point).

It's worthwhile reviewing these exemptions as there may be opportunities to bring overseas income into the UK particularly as personal assets without triggering a remittance.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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