Changes to the remittance basis: Osborne leads the charge on non-doms

In his Autumn Statement yesterday, George Osborne announced increases to the remittance basis charge (RBC) paid by long term non-domiciled residents of the UK.

To recap, non-domiciliaries who elect for the remittance basis of taxation are subject to income tax and capital gains tax on their non-UK source income and gains only to the extent that the income or gains are remitted (i.e. brought) to the UK. Those who do not elect for the remittance basis are subject to tax on their worldwide income and gains as they arise. Once an individual has been UK resident for 7 of the previous 9 tax years, claiming the remittance basis comes at the cost of the annual RBC.

The Chancellor yesterday confirmed the government's commitment to retaining the concept of the resident but non-domiciled taxpayer, but stressed that non-domiciliaries must make a fair contribution. The result is the following changes to the RBC payable by non-domiciled taxpayers with effect from April 2015:

• For those who have been resident for 7 out of the previous 9 tax years – the £30,000 RBC will remain unchanged

• For those who have been resident for 12 out of the previous 14 tax years – the RBC will increase from £50,000 to £60,000

• For those who have been resident for 17 out of the previous 20 tax years – a new higher RBC rate of £90,000 will be introduced

In addition, the government plans to consult on a proposal that the election to pay the RBC should last for a minimum of three years. Currently, individuals who are entitled to the remittance basis can elect each year whether or not to pay the RBC, depending on whether the amount of non-UK source income and capital gains that has arisen to them in that year justifies paying the charge.

The proposed change appears to be designed to prevent taxpayers from arranging their affairs so that they only need to pay the RBC occasionally (for example, by concentrating what might otherwise be regular distributions from offshore trusts into a single tax year).

If the proposal survives the consultation, however, it could unfairly affect taxpayers whose income and gains fluctuate from year to year through no design of their own. Circumstances can also be envisaged in which a taxpayer who has lost his source of income finds himself subject to the RBC for up to two tax years without the income to support it. It is hoped that these and other potentially unfair results will be addressed during the consultation.