Non Doms and the de minimis limits

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.