Non dom and income tax on foreign interest - USERNAME: blueshaze - 06/07/2012

Tax Question:

My wife is non-dom with annual income comprising UK and foreign share dividends, bank interest etc currently totaling only about £3K.

In 2004 when she was paying higher rate UK tax she transferred €60K from her offshore bank account which comprised taxed funds transferred from the UK a couple of years earlier to n Jersey based offshore account that had a guaranteed of growth of 20% over next 5.5 years with possibility of higher, dependant on stock market performance. This matured to €72K in July 2009 after the change in tax rules.

Does she have to declare/pay tax on the whole of this sum as having 'arisen' in 2009/10 tax year? (Seems unfair as if it was normal interest it would have been split over the 5.5 years so would only have 'arisen' in the last year) There is no intention to remit any of the money to the UK.

Is there anything that could reduce the tax payable?

Answer:

ITTOIA05/S370 provides that tax is charged on the full amount of interest arising in the tax year (unless the remittance basis applies). Interest 'arises' when it is received or made available to you. Interest has been made available if it is credited to an account on which you are free to draw.

Therefore the interest would be taxed at the end of the term when received. Therefore if she's taxed on the arising basis the £12K would be taxable.

If she was to claim the remittance basis this could be avoided but she's need to consider the £30K tax charge. This would then be a mixed fund with any remittances being the £12K first before the taxed income.

There's nothing she could do to reduce this (other than maximising all available reliefs (eg reinvesting proceeds into EIS shares for instance to generate tax credits)). She will have her personal allowance to offset against her combined income and would be within the 20% tax rate if no other income.

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.

Google+

=============================================================

Disclaimer

i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.

ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.

These Notes (and Disclaimer) do not affect your statutory rights in the United Kingdom.