Non-domicile unremitted funds

by **jtinlondon** on Wed Jul 22, 2009 5:08 pm

Hi,

I asked a variation of this question a few days ago on this board but unfortunately did not solicit a response so I'm trying again here hoping for some feedback.

Basically, as a non-domicile completing the tax return for the first time since the new and complex rules regarding 'Remittance basis charge (RBC)' were introduced, I am questioning the definition of the option to declare if my "unremitted income and capital gains for 2008-09 is less than £2000" and so posssibly avoid the £30,000 RBC tax charge. In the tax year 2008-09, my foreign income and capital gains were a net loss, i.e. less than £2000. However from previous tax years I am carrying forward substantial positive capital gains, which I have not remitted to the UK. In my situation, am I considered to have an unremitted gain for 2008-09 of less than £2000 (i.e. do I tick Box 28 on the Residence, remittance bassis pages of the tax return) or am I considered to have more than £2000 gains for 2008-09 due to prior year gains?

Any feedback would be much appreciated.
Thanks in advance.

by **tom 7000** on Fri Jul 24, 2009 9:58 am

It was hard to follow your question but heres some thoughts.

Capital gains tax only applies when you sell the asset and take possesion in monetary terms of the gain. So if You had a million shares in Nestle SARL and you bought them for £1 but now they are worth £2..you havent got £1m gain. You have 1million shares.

When you sell the shares then you have the gain. This is because the share price may crash and you might end up with nothing. So you dont revalue assets each year.

If you sold the shares 10 years ago, you dont have a carried forward gain, you have a heap of cash in your bank account......

by **Barry Hallam** on Fri Jul 24, 2009 10:53 am

The "Unremitted income or gains of less than £2,000" applies to the tax year in question and you cannot set capital losses against income.

So say you have foreign income of £2,500 and a capital loss of £1000 you do not meet the criteria.

Similarly if you have spent income offshore it hasn't been remitted. So if you have foreign income of £2,500 and spend £1,000 offshore you still have unremitted income of £2,500 and do not qualify.

If you are looking at gains / losses you can only set them against each other if you have made the apprporiate election. So if you had gains in the year of £2,500 and losses of £1,000 you still have unremitted gains of £2,500 unless you elect. Whether to make an election or not is a complex area itself. as is the question of what income / gains you nominate for the £30k RBC.

If you have realised capital gains or had income arising in previous years when you were onthe remittance basis you will continue to be taxable on these on that basis even if you chose the arising basis in future. They do not alter the £2,000 unremitted income / gains position.

The new rules are extremely complex and I think you should seek professional advice to help you with your tax return.

I hope this of some help

by **jtinlondon** on Fri Jul 24, 2009 6:26 pm

Thank you for the replies.

I think this statement answers my main question: "If you sold the shares 10 years ago, you dont have a carried forward gain, you have a heap of cash in your bank account......"

If I understand this correctly, even though I had unremitted gains from previous years, the gains are not carried forward. So my capital loss in 2008-09 is not jeopordised by prior year gains when considering if less than £2000.

Also, I acknowledge the staement "So say you have foreign income of £2,500 and a capital loss of £1000 you do not meet the criteria.". However in this case, if more than £500 has been remitted back to the UK in 2008-09 I assume the criteria is now again met as 'unremitted' income for 2008-09 is now back below £2000.

Thanks again.

by **maths** on Sun Jul 26, 2009 4:52 pm

If I understand this correctly, even though I had unremitted gains from previous years, the gains are not carried forward. So my capital loss in 2008-09 is not jeopordised by prior year gains when considering if less than £2000.

There are two separate issues here.

Whether you meet the below £2,000 test for 2008/09 is determined ignoring any capital loss for 2008/09 (or indeed any other tax year). Similarly, unremitted capital gains of other tax years are irrelevant in determining if you meet the below £2,000 test for 08/09.

However, in ascertaining your actual UK capital gains tax liability for 08/09 (nothing to do with the below £2,000 test) any capital loss of 08/09 is in principle offsettable against any capital gains of 08/09 (an election possibly being necessary).

Also, I acknowledge the staement "So say you have foreign income of £2,500 and a capital loss of £1000 you do not meet the criteria.". However in this case, if more than £500 has been remitted back to the UK in 2008-09 I assume the criteria is now again met as 'unremitted' income for 2008-09 is now back below £2000.

Correct.

by **jtinlondon** on Sun Jul 26, 2009 8:35 pm

Maths, thank you for your reply also.

I accept all you say except your initial sentence "Whether you meet the below £2,000 test for 2008/09 is determined ignoring any capital loss for 2008/09".

Is this correct?

The below £2000 test is for income and capital gains. Surely for the capital gains, capital loss in 2008/09 is included in the calculation? In my case in summary, my capital gains/losses were derived purely from share dealing. In 2008-09 some of my share sales generated a profit, some generated a loss, the net of all sales being a loss. Surely in the calculation when determining if my capital gains is less than £2000, I include the share sales which generated a loss for 2008-09 (i.e. I include capital losses for 2008/09) as well as the share sales which generated a profit.

Or am I misunderstanding something here?

by **Barry Hallam** on Mon Jul 27, 2009 1:58 pm

I now tend to agree with Maths. The losses in 2008/2009 cannot be used to reduce the " unremitted gains" even if an election is made. Section 809D ITA 2007 states that the unremitted icome / gains ie effectively:

The total income and gains arising in the year less the icome and gains actually remitted.

Losses do not come into it.

by **maths** on Mon Jul 27, 2009 2:26 pm

As I indicated above there are two distinct issues; liability to cgt for a tax year; ascertaining if the below £2,000 test is satisfied for a tax year.

Re the former, yes, in principle losses may be deductible.

Re the latter, no losses may not be deducted.

The issue hinges on the wording of the legislation as indicated by Barry Hallam in his latest posting.

by **jtinlondon** on Mon Aug 03, 2009 10:14 pm

Thank you Barry, Maths for your deeper insight.

Unfortunately, I can't help thinking something is still missing here. I took your reference to Section 809D and came up with this link:
http://opsi.gov.uk/acts/acts2008/ukpga_20080009_en_21

Under Section 809D I see:
The amount of an individual’s “unremitted” foreign income and gains for a tax year is— .
(a) the total amount of what would (if this section applied) be the individual’s foreign income and gains for that year, minus .
(b) the total amount of those income and gains that are remitted to the United Kingdom in that year.

When I read "the total amount of what would be the individual’s foreign income and gains for that year", that appears to me to be referencing the foreign component of an individual's income and gain for a year. Simply as a layman, if I am being asked what were my gains in a year and I looked at my share portfolio, it would not occur to me to just isolate my share sale gains and ignore my share sale losses. In the same way domestic tax on share investments would look at all profit and losses and a tax applied to any net gains, surely it would be logical that a tax on foreign share investments should also look at the net position and not just those investments which were profitable?

by **Barry Hallam** on Tue Aug 04, 2009 2:12 pm

Sadly, logic and tax legislation often do not go hand in hand. The legislation simply talks about gains, if you make a loss then the gain is taken as nil. Claiming relief for losses is a separate point and in this context is subject to an election (section 16ZA TCGA 19920).

As stated previously, even with an election losses are not taken into account for the purpose of the £2,000 rule.

Reading between the lines, it seems to me that you may be in a position where you do not qualify for the remittance basis under the £2,000 rule and so will need to pay £30,000 (actually £45k in January 2010 and £15k in July 2010) as the RBC can generate payments on account. It would be advisable to seek professional help to complete your tax return as you will need to consider what income / gains you want to nominate for the £30K RBC.

Happy to help