If you come to the UK to live but keep your permanent home elsewhere (i.e. you are resident but not domiciled in the UK), you will have the opportunity to be taxed on the more favourable remittance basis. This means that you will only be taxed on foreign income and gains which are remitted to (i.e. brought into or used in) the UK either directly or indirectly, in contrast to most UK resident taxpayers who pay income tax or CGT on all their worldwide income and gains. This favourable tax treatment does, however, come at a price for longer term residents: those who have been resident in the UK for at least seven years must pay a £30,000 per year charge for the privilege, and from 6 April 2012 this figure rose to £50,000 for individuals who have been resident in the UK for 12 years or more. The circumstances in which funds can be ‘remitted’ to the UK can be wider than you might think. Recent developments, however, will prevent foreign funds from being taxed on the remittance basis in two specific sets of circumstances.

Works of art brought into the country to be displayed at museums are generally excluded from the remittance basis

Business Investment Relief

An unwelcome side effect of the favourable remittance treatment afforded to UK resident non-domiciled individuals (‘RNDs’) from a UK perspective is that it could discourage international individuals from investing in UK businesses. In an attempt to counter this, a new potentially attractive and far reaching relief was introduced from April 2012 whereby untaxed foreign income and gains brought into the UK for the purpose of investment in certain commercial trading businesses or property letting or development businesses will escape UK tax liability. To qualify for this relief, investments must be into a company (as opposed to a partnership or unincorporated business) that is either unlisted or quoted on exchangeregulated markets such as AIM or PLUS.

The investment can be made either by way of shares or loan stock, and HMRC confirmed a few weeks ago that loans taken out by RNDs after 6 April 2012 to invest in a qualifying business in the UK, which are subsequently repaid from foreign income or gains will qualify for the relief. Claims for relief must be made in the year the loan is repaid, rather than when the funds are initially invested.

There is, however, a potential sting in the tail. Once an investor disposes of an investment they will have 45 days to either export the proceeds or reinvest them in another qualifying business. If the investor does not do this, a remittance of the untaxed income or gains used to fund the original purchase will be triggered and so a tax charge may arise at that point.

This is a complex relief and there are many potential traps and pitfalls for the unwary. Therefore, if you are interested in making use of Business Investment Relief, you will need to take professional advice from the outset.

Art Sales

The rules on purchasing, selling and bringing works of art (and other chattels) in and out of the UK for repair, sale or display are complex. If a work of art is brought to the UK to be enjoyed by that individual and purchased out of untaxed foreign income or gains, a taxable remittance will arise. The remittance is based upon the purchase price of the asset, and not its market value. This can in some instances work in the RND’s favour.

There are, however, various exclusions. Assets that were already owned at 11 March 2008, even if purchased out of untaxed relevant foreign income, will not be considered a remittance. Equally, such assets bought after 12 March 2008 but which were in the UK on 5 April 2008 will not be treated as remitted, even if subsequently taken out of the UK and brought back in.

In addition, works of art brought into the country to be displayed at museums are generally excluded from the remittance basis. Equally, items brought into the country for repair or for less than nine months also fall outside of the remittance rules. However until 6 April 2012, a remittance could still be triggered later on, if works of art (and other chattels) were sold whilst the RND remained UK resident, which effectively encouraged individuals to remove the art works from the UK before sale.

UK art institutions lobbied hard for a change to the rules in order to encourage sales of art through UK auction houses etc. To this end, a remittance charge will now only be triggered on the original income or gains used to purchase the asset if the proceeds are still retained in the UK broadly 45 days after the sale proceeds have been received. A remittance charge can also be avoided if the proceeds are re-invested so that they qualify for business investment relief. A further and most welcome change is that where works of art and other chattels are sold in the UK, the resultant gain can be subject to the remittance basis (if appropriate) rather than being automatically subject to capital gains tax.