Non Dom clarification questions

Question:

As these issues are very important to me I would be grateful if you can confirm that I have understood them correctly.

1)Regarding Nominated Income and Capital Gains Accounts. It is fine to nominate amounts if one is going to eventually remit and pay tax on all other gains and Income before remitting the nominated sums which would then be free of tax.This would have to include income and gains pre 2008.The second major disadvantage is that I would pay tax on the capital gains(apart from the ones nominated) realised in year of nomination irrespective of having spent these gains offshore.

2)I can write capital gains off against offshore losses as long as
a) the losses occurred before the capital gains were remitted
b)I followed the ordering rules
c)I am not allowed to use UK losses until I have extinguished all offshore capital gains losses against offshore capital gains whether remitted or not remitted.

The last point means that even if I have a net loss in the UK any UK gains will be taxable unless I can prove that there are no more offshore gains.

I must say you provide a very helpful and informative service and I thank you sincerely

Answer:

1)Regarding Nominated Income and Capital Gains Accounts. It is fine to nominate amounts if one is going to eventually remit and pay tax on all other gains and Income before remitting the nominated sums which would then be free of tax.This would have to include income and gains pre 2008.

Yes, this is correct. The nominated sum would be free of tax only providing all other unremitted income and gains had been remitted. If not, you'd be deemed as remitting the unremitted income/gains even if this was from a nominated account.

The second major disadvantage is that I would pay tax on the capital gains(apart from the ones nominated) realised in year of nomination irrespective of having spent these gains offshore.

Yes, when looking at your unremitted income/gains it looks at the income/gains that have arisen. Therefore they'd still be counted even if you spent them.

2)I can write capital gains off against offshore losses as long as
a) the losses occurred before the capital gains were remitted
b)I followed the ordering rules
c)I am not allowed to use UK losses until I have extinguished all offshore capital gains losses against offshore capital gains whether remitted or not remitted.

The last point means that even if I have a net loss in the UK any UK gains will be taxable unless I can prove that there are no more offshore gains.

More or less correct. Your UK and foreign losses are lumped together as 'relevant losses' and would then be subject to the ordering rules etc.

Therefore the effect of this would be that UK losses would as you state only be offset against UK gains after all offshore gains (remitted & unremitted).

d) I have 5 years to decide (from the year I choose the remittance basis )to make an election and do not have to enter anything in my 2008 Tax Form even though in 2008 I am going to choose the remittance basis.

I've reviewed this given it's a crucial area.

The general position as stated by HMRC is that '…Under Self Assessment, for persons other than companies and where no other time limit is specified, a claim for relief in respect of capital gains tax must be made, within five years of the 31 January following the tax year to which the claim relates…'

There's little specific guidance by HMRC on the actual detail of the loss claim. However they state:

'…An election for losses on disposals of non-UK assets ("foreign losses") to be allowable losses must be made by an individual for the first tax year in which they claim remittance basis, and in which they are not domiciled in the UK. This is known as the relevant tax year.

The procedure and time limit for making an election are governed by the rules for claims to relief etc in the Taxes Management Act. (TMA70/S42 and TMA70/S43)…'

This is supporting the general position above such that a loss is not an allowable loss unless it is notified to HMRC (s.16(2A) TCGA 1992), and the time limit for that notification is 5 years from the filing deadline for the return for the year in which the loss arises (s.43(1) TMA 1970).

In the guidance by the ICAEW on the new foreign capital loss election they also state:

'...The most important feature of the new rules is that an election must be made for the first year in which the remittance basis is claimed regardless of whether there are any losses at that point.

If the election is not made for this first year (2008/09 onwards) then the power to claim foreign losses is removed unless and until a tax year in which the individual is domiciled in the United Kingdom (in other words for foreign losses to be allowable again the foreign domiciled individual must acquire a UK domicile of choice). The time limit is the normal self assessment limit one of five years and 10 months...'

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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