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Daydream believers

Last week, I looked at the new day counting provisions for determining the matter of UK residence. A number of cases have been heard on this issue recently. The most well publicised has probably been the Gaines-Cooper case but there have also been a couple concerning airline pilots. One was Grace v HMRC and the other was the Shepherd case.

The individuals in both cases had previously lived in the UK and were claiming to have ceased to be UK resident when setting up home abroad while continuing to work for their employer, British Airways.

The key in both cases, before day counting had to be taken into account, was whether the individual’s absence from the UK was “for the purposes of occasional residence abroad only”. If this were the case, then the individual would remain fully taxable on worldwide income and day counting would then be irrelevant.

However, if the individual could establish that his absence was “for the purposes of continuous and settled residence abroad, punctuated only by the need to visit the UK for the purposes of work”, then day counting would be very relevant as the individual would only be UK resident if he was physically present in the UK for 183 days in a year or he satisfied the 91-day test on average over a four-year period.

The new day counting provisions in relation to residence could therefore be important to those who are not UK resident under the general law. If they become UK resident for a year (and the amended day counting rules could make this more likely), then they are could well fall within the definition of long-term resident for the purposes of the new non-dom remittance charge.

Who is potentially liable to pay this charge? Well, you can determine this by looking at those who are not. A number of useful concessions are contained in the Finance Bill. The first is a de minimis provision whereby if a non-domiciled individual’s unremitted overseas gains and/or income in a tax year do not exceed £2,000, then the remittance basis can apply without the payment of the £30,000 charge and without the loss of certain personal allowances and the annual capital gains tax exemption.

Of course, it would not make sense to pay a £30,000 charge to save tax on unremitted income and gains arising of £2,000. However, if this de minimis charge was not there, then this level of income and gains would be assessed on the arising basis.

This is the real effect of denying the remittance basis to long-term resident non-domiciliaries unless they pay the £30,000 charge, namely, that income and gains will be assessed on the arising basis as they are for all UK-resident UK domiciliaries.

Even more important than the £2,000 de minimis limit is the fact that the £30,000 charge does not have to be considered until the non-domiciliary has been resident in the UK for seven out of the preceding nine tax years (seven out of 10 years including the tax year in question).

Those who are not long-term resident or who have more than £2,000 of unremitted overseas income/gains in a tax year will be taxed on the arising basis unless they claim the remittance basis. If they claim the remittance basis, they will not need to pay the £30,000 annual charge but will lose the following:

l The personal allowance and the blind person’s allowance.

l The married couple’s allowance.

l Relief for payments up to £100 a year which secure life insurance under a trade union or police organisation scheme or for family members in certain circumstances.

l The annual capital gains tax exemption.

Another concession given as a result of effective lobbying is that non-domiciled minors are also exempt from the charge, regardless of the level of their overseas income and gains.

In closing, I will restate that the charge only has to be considered by long-term resident non-domiciliaries. For this purpose, long-term means resident in at least seven of the nine preceding tax years (10 including the tax year in question).

It is here that the impact of day counting on the application of the new rules for non-doms can be felt.


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