Changes to the residence and domicile rules were announced in the 2007 pre-Budget report. The final changes to the legislation have now received Royal Assent and can be found in ss24 and 25 and Schedule 7 to the Finance Act (FA) 2008. The revised rules are extremely complicated and will likely result in having the desired effect for HM Revenue & Customs (HMRC) of causing many non-domiciled individuals to be taxed on an arising basis of taxation (as opposed to the remittance basis of taxation), especially those non-domiciled individuals who have little in the way of foreign assets, income or gains.

Generally, if an individual pays tax on the arising basis, tax is paid on their worldwide income and gains derived in that particular tax year, regardless of whether the income or gains are remitted to the UK. In contrast, if an individual pays tax on the remittance basis, the individual will only be liable to pay tax on any UK income and/or gains that are remitted to the UK in that tax year. Foreign income that is not remitted to the UK is not taxed in the UK. 

This article seeks briefly to explain the main changes introduced by the FA 2008 and considers the implications of a resident non-domiciled individual electing to be taxed on the remittance basis. 

Background

For all tax years ended on or prior to 5 April 2008 UK residents who were either not domiciled or not ordinarily resident in the UK could access the remittance basis of taxation and ensure that no UK tax was paid on the foreign income and gains that they left outside of the UK. These rules were seen to provide an unfair tax advantage to those individuals who were treated as non-domiciled or not ordinarily resident in the UK. The Labour government had for some time indicated that it was keen to review the rules, and it was forced to act in the run up to the election that was expected to be called at the end of last year when the Conservative Party pronounced that it would impose such a charge. Draft legislation was published soon thereafter.

Following consultation with various parties, it was decided that the tax charge would take a different form from the one set out in the draft legislation. The
