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Finance Bill 2012: Government defers residency test

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6th Dec 2011
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The government has postponed for a full year the introduction of a statutory residence test, despite a successful consultation over the summer which would have given individuals some much needed certainty about their status.

The omission of this measure from the Finance Bill 2012 preview came as a surprise after the government announced in the Budget earlier this year that it intended to introduce the test in the Finance Bill 2012 and carried out a successful consultation exercise during the summer.

David Gauke told TAXtv that the statutory residence test would be delayed for 12 months because there were “difficult issues to address” which, he was keen to point out, was “why the matter has not been dealt with before”. He said the government “remained committed to the statutory residence test” and that George Osborne would be giving details of the next step in the spring budget with draft legislation expected at this time next year and a new anticipated introduction from 6 April 2013.

[Update: the details were set out in ministerial statement today.]

In October Robert Gaines Cooper took a judicial review to the Supreme Court against the UK tax authorities, claiming (along with two others) that they had failed to stick to published guidance and had significantly changed their practice on tax residence.

The Supreme Court rejected the allegations, but the judges criticised the HMRC guidance as “unclear” and “ambiguous”.

The residence test set out in the consultation documentation included a range of factors such as the family residency status, living arrangements and employment, and number of days spent in the UK and would have would provided more clarity, according to Giles Mooney of TaxTV.

“The consultation had gone so well that most people thought that it would be fairly easy to get something done by April and to push it forward. But they’ve obviously decided that it’s too big a deal. To have pulled it forward for a year effectively is a shock, because we thought it was actually pretty good,” Mooney said.

Carolyn Steppler, private client tax partner at Ernst & Young, was also disappointed by the news: “A statutory residence test is now urgently needed to help individuals wade through the mire,” she said. “In an increasingly global market place, where it is just as easy to work in Switzerland and other low tax jurisdictions as it is the UK, ongoing ambiguity will do little to attract talent and investment to our shores. Employers seconding employees overseas will need to urgently revise contracts which will have been drawn up on the basis that the new test will apply from 6 April 2012.”

Philip Fisher, head of Employment Tax and Rewards at PKF, was more upbeat about the delay: “While a definitive test for UK residence is long overdue and greater certainty about tax status is much needed, the fact that the Government has decided against rushing through flawed rules that were likely to cause significant problems is good news.

“In particular, it is hoped that the final version will be both fair and fully intelligible so that taxpayers can self assess their position with confidence. Sadly, the original proposals would not have achieved that goal. If nothing else, the delay will give individuals some warning and allow for a fairer transition to the new regime.”

Following on from the summer's consultation, legislation will be introduced to make changes to the taxation of non-domiciled individuals who elect to be taxed on the remittance basis. As expected, the Finance Bill will include sections on the reform of the taxation of non-domiciled individuals with an increased domicile remittance charge of £50,000. Individuals who have been resident for more than seven but less than 12 years will continue to pay £30,000.  

However, UK non-doms will be allowed to make tax-free remittances to the UK if they make a qualifying investment in a UK business. This was a dramatic change, according to Cormac Marum, a partner at UK200Group firm Harwood Hutton.

“It could provide SMEs with a very welcome new source of funding at just the time when many growing businesses are complaining that the UK banks are still dragging their feet over giving them support,” he said.

The Treasury also  published a response to the consultation on non-domicile taxation.

Legislation will also be introduced to remove from CGT gains and losses on withdrawals of funds from bank accounts denominated in a foreign currency.

Gains will be exempt from CGT and losses will not be allowable where they arise to individuals - both non-domiciled and domiciled - trustees and personal representatives of deceased persons.

The change will take effect for withdrawals on or after 6 April 2012.

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By Chris Pitt
13th Mar 2012 15:59

A frustration

We have found the delay to the Statutory Residence Test to be frustrating for one an all.  HMRC of course need time to consider the various issues following the public consultation, but the concern is over whether there will be significant changes to the previously proposed measures.

 

 

 

 

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