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Capital Gains Tax (CGT): Non-Residents and UK residential property from 6/4/15

As announced in the March 15 Budget a new charge to CGT for Non Residents and UK residential property from 6/4/15. Good news is that at least prior gains  should not be caught by this due to “rebasing” of the market value or options to either “time apportion” or calculate gains /losses “over the whole period of ownership”

Further information regarding the new Non Resident CGT return is expected after 5/4/15 that has to be filed within 30 days of any such future property disposal and we will continue to cover future planning opportunities for existing clients or indeed for others upon request.


Transit Days - Statutory Residence Test Update – 05/06/14
Aircrew cannot rely upon this midnight exclusion under the SRT for 13/14 onwards when positioning into the UK as a passenger before midnight and then carrying out UK work activity before leaving the UK.
HMRC PT International | Technical Advisory Team have confirmed that our understanding and interpretation of the legislation and application in this regard and particularly for Aircrew is correct – see RDR3 basic guidance (para 3.9 page 35).
Specific examples below refer and in both of which the individual arrives in the UK of their own volition as a passenger and spends the one midnight before leaving the next day;-
Firstly, when transiting the UK as a passenger on holiday via an international flight and stopover or to pick up a connecting flight - before continuing with an onward flight as a passenger to holiday destination abroad (ie no unrelated activity) so yes midnight then discounted as a transit day, but of course this will have limited application.
Secondly, having positioned into the UK (as above) to then work out of the UK the next day via working International flight departure, or Simulator / training in the UK - before then leaving – (nb considered as activity unrelated to simple transit/passage through the UK) so no discount as a transit day.

Furthermore if the deeming rule applies (see below) to an individual, then any transit day when that individual leaves the UK before midnight will count as a qualifying day (ie to be counted as a deemed midnight) under the deeming rule.
Midnight deeming rule
If you are not present in the UK at the end of the day that day will not normally count as a day spent in the UK. However this is subject to deeming rules - which can apply if you have been UK resident in one or more of the preceding three tax years and have at least three UK ties for the tax year concerned.
When applicable you then have to count additional part days when present in the UK (above a 30 part day allowance) along with your actual midnights for the physical presence element of the SRT. So for example 85 actual midnights plus 45 part days would become 85 plus (45-30) = 100 midnights to count.
This should not impact upon you providing that you had less than three UK ties and or given that extra part UK visit days (i.e. visit but no midnight) did not exceed 30.
Budget Update  – 28/03/14 - considered by some to be for the "makers, doers and savers" but amongst such hype and the anticipated usual tax free allowance increases - some further consultations to consider.

Personal Allowances for Non Residents
The government intends to consult on whether and how the allowance could be restricted to UK Residents and those living overseas who have strong economic connections in the UK, as they believe is the case in many other countries, including apparently most of the EU.

Capital Gains Tax - Non Residents and UK Residential Property
As announced in the Autumn Statement, legislation will be introduced to charge CGT on future gains made by Non - Residents disposing of UK Residential property. A consultation on how best to produce the charge will be published and the changes will have effect from April 2015 with legislation via Finance Bill 2015.

Autumn Statement – 5/12/13 Some of the proposed UK Tax changes

Capital Gains Tax (CGT) Private Residence Relief – Final period rule

The final period exemption applies to a property that has been a person’s private residence at some time even though they may not be living in the property at the time they dispose of it and they may be claiming private residence relief on another property at the same time. From 6 April 2014 the final period exemption will be reduced from 36 months to 18 months.


CGT Non residents and UK residential property
From April 2015 a capital gains tax charge will be introduced on future gains made by non-residents disposing of UK residential property. A consultation on how best to introduce this will be published in early 2014 on GOV.UK.

CGT Annual Exempt Amount
The annual exempt amount will be £11,000 for the year 2014 to 15 and £11,100 for 2015 to 16 and subsequent years. The exemption for most trustees will be £5,000 and £5,500 respectively.

Pensions Individual Protection

The government will introduce individual protection 2014 (IP14) as a consequence of the reduction in the lifetime allowance to £1.25 million from 6 April 2014. Individuals with IP14 will have a lifetime allowance of the value of their pension savings on 5 April 2014 subject to an overall maximum of £1.5 million. (Finance Bill 2014)

Pilots UK industry wide Fixed Rate Expenditure Allowance increase for 2013/14 onwards

HMRC have agreed an increase in the standard FREA for uniformed airline pilots, co-pilots and other uniformed flight deck crew to £1,022. Along with a further deduction of £110 to cover the allowable cost of travel to;-

• Medical examinations
• Flight Simulator sessions
• Technical refresher sessions
• Crew resource management training (CRM)
• Emergency and safety equipment training (SEP)
• Fire and smoke training (F&S)

You are not obliged to accept these basic amounts if allowable vouched expenses are higher. We will of course factor this into claims for existing clients and be delighted to hear from new contacts who are seeking to optimise their UK tax affairs.


Statutory Residence Test – Update 18/07/13
The Finance Bill received Royal Assent and became Finance Act 2013 on 17 July and is being prepared for publication. The provisions of the Statutory Residence Test take effect from the start of the 2013/14 financial year, April 6th and aspects will no doubt be welcomed by many including some within the various UK tax professional bodies.
Aircrew though remain subject to special rules - as previously set out - with subsequent enactment after anticipated minor tinkering by Parliament and the Lords concerning the “SRT” and Aircrew in particular.
Clearly still a way to go though before we see actual outcomes and any new working practice adopted by HMRC on a day to day basis for 13/14 and so further details will posted as they become available. In the meantime existing clients will continue to benefit from ongoing individual advice and new contacts are welcome to seek our interpretation of their circumstances in this regard.
Statutory Residence Test - Update -08/05/13
HMRC has just published further guidance intended to help individuals decide if they are resident in the UK for tax purposes under the SRT. They consider that it will provide more certainty about “Residence” for those with complex circumstances and also propose to launch an on-line residence indicator in the next few weeks.
 
It will apparently give an indication of your residence status after answering a few straightforward questions such as how many days you spent in the UK, where you have a home and if you have family ties. The first version is understood to be a trial version and it remains to be seen exactly how much use this will be for Aircrew and other complex cases - so should really carry a permanent health warning - only to be used with caution! Simply best not to be relied upon in isolation but do contact us either for further service details and or an independent review of your Residence status.

Statutory Residence Test - Budget Statement Update -20/03/13
Apparently considered by many to be a fiscally neutral budget overall along with a number of new anti-avoidance measures - but with regard to the proposed Statutory Residence Test and reform of ordinary residence confirmation by the Chancellor of intentions to proceed as follows;-
“As announced on 6 December 2011, the Government will introduce a statutory definition of tax residence and abolish ordinary residence for most tax purposes from 6 April 2013. “
Further indications are that the publication of Finance Bill 2013 and its supporting documents are due on 28 March 2013 and additional news in this regard will be posted as appropriate.

Statutory Residence Test – 18/03/13
 
Barring any last minute U turns or further announcements within the imminent Budget - then after several periods of consultation and draft legislation - the government seem set upon introducing a Statutory Residence Test via Finance Bill 2013 to put the rules which determine an individual's tax residence on a statutory basis.
 
Broadly as previously set out (see earlier comments) and apart from a few additional tweaks the draft legislation largely remains as proposed after the first consultation.
 
Given that Royal Assent follows and the proposed legislation is enacted “as is” then the SRT will come into force from the start of the tax year 2013-14. Until then further amendments are possible.
 
Determination steps of the proposed SRT cover automatic;-
 
·         UK Residence
·         Non Residence
 
Then to consider whether or not a Sufficient Ties test combined with the amount of time spent in the UK renders the individual Resident or Non Resident in the UK.
 
What about Aircrew in particular?
 
·         Many Aircrew will simply not qualify for Automatic Non Residence so will need to focus upon reducing UK ties and connecting factors and restrict visits to pursue or maintain a claim
·         International Transport Workers – (80% or more International duties) - cannot qualify for Full Time Work Abroad route
·         Split Tax Year – Departure/Arrival – harder to achieve post 5/4/13
·         New Deemed Midnight rule can count - “UK visits” with no midnight - in excess of 30 such events
·         UK Accommodation – still best avoided completely and more distant relatives property only to be used less than 16 midnights per tax year
·         Gaps in use of Accommodation of less than 16 days will count as it being available throughout
·         Hotels – short stays within 91 day limit should be ok - using a different room and ideally a different Hotel each time before and after International trips to and from UK. Avoid return to same hotel within 16 day period.
·         Exceptional Circumstance – visits beyond control can be excluded up to a maximum of 60 days – but best not relied upon as likely to generate HMRC challenge for Aircrew
·         Transitional provisions to cover tax years prior to 5/4/13 - when working through SRT for later years envisaged to have minor impact in rare cases only.
·         UK Duties – basis of liability for remuneration of UK Non Resident remains unchanged subject to any appropriate Treaty relief
·         New rules for the taxation of certain additional income and gains arising during a period of temporary non-residence – return to UK within 5 years or less
 
With over 50 pages of draft clauses, including several anti-avoidance clauses, the draft legislation remains overly complex. Whilst HMRC indicate that there will be an online tool to assist taxpayers in deciding whether they are resident or not, it comes with a ‘health warning’ and cannot be relied upon.
 
(nb These are general comments and should not be acted upon before taking professional advice tailored to your exact circumstances. This will be available to our existing clients and we will gladly undertake an initial review for new contacts without obligation.)
 
Statutory Residence Test Update - December 12
Following closure of the second consultation phase and autumn statement the Government have published a document with updated responses along with extensive draft legislation on the statutory residence test and reforms to ordinary residence. Having considered the views expressed during the second consultation phase, which ended on 13 September 2012, and made various changes to the draft legislation they now invite views on the technical detail of the draft legislation by 6 February 2013 before publication in Finance Bill 2013.

Once reviewed further additional comments will be posted.
Statutory Residence Test – HMRC Changes for Aircrew – 21/06/12
 
After publishing its response on the 21/06/12 the Government currently remains committed to the basic proposed structure of the SRT. A second phase of consultation will now last until 13/09/12 before draft legislation is due to be finalised via budget 2013 and subsequent parliamentary process.
 
A slight relaxation for some, but for Aircrew possible turbulence ahead and a way to go before we have any new finalised UK Residence Rules for application from 6/4/13.
 
General changes and clarifications to the original draft of 17/06/11 so far are summarised within Chapter 5 of HMRC publication.
 
In broad terms the proposals continue to make a distinction between “Arrivers” and “Leavers” and follow progressive steps via Part A (Conclusive Non Residence), B (Conclusive Residence) and Part C – for more complex cases by considering other Connecting Factors and Day Counting as appropriate, to determine UK Residence status of individuals in relation to Income, Capital Gains and Inheritance Tax.
 
Amongst “tinkering” with day count adjustments and minor transitional rules, of particular interest to Aircrew will be the proposed additional specific measures targeted at them via reference to “International Transport Workers” (nb ITW currently taken to be those performing a mixture of UK/Overseas duties on an International basis rather than duties wholly abroad throughout tax year –but subject to possible clarification / changes) namely;-

·         Day of presence in the UK - midnights will still be counted.*
·         Excluded from Full Time Work Abroad route within Part A test for those with minimal UK workdays to fast track Non Residence after one complete tax year. (nb relaxation applied from 6/4/10 to be withdrawn from April 13 to restore prior position)
·         Can still be Non Resident with very few days in the UK via Part A or, more likely, via Part C of the test with changed circumstances and reduced connections by what has previously been described as exhibiting a “distinct break”.
·         Split year Residence status when leaving to live abroad likely to be harder to achieve with the imposition of a restricted day count -so a departure just before start of new tax year may become more relevant.
·         All travel carried out by “ITW” considered work for SRT and “substantive employment” connection of Part C.
·         UK workday - any journey, or training provided by your employer, that commences in the UK irrespective of the number of hours involved. Multiple journeys made in one day if any of those journeys start in the UK
·         Overseas workday -any journey that commences overseas. Multiple journeys made in one day if none of these journeys start in the UK.
·         Where a journey lasts more than one day, each day will be treated as a separate journey, with the starting location determined by the individual’s actual location at the start of the day.
·         Possibility of supplementary rules for frequent commuters present in the UK on a large number of days but without being here at midnight.*
·         Excluded from Full Time Work in the UK for Part B test but still need to consider “Substantive UK duty test at Part C.
 
UK accommodation is still best avoided entirely as a “connecting factor” but in future looks as though an individual will be considered to have this if:
 
·         They have a place to live in the UK
·         It is available to be used by them for a continuous period of at least 91 days in a tax year; and
·         They spend at least one night in that place during the tax year.
 
Relatives and Hotels - accommodation held by relatives will only count if the individual spends more than 15 nights there during the tax year. Where there is a gap of fewer than 16 days between periods in the tax year in which a particular place is available to the individual, that place will continue to be treated as if it were available to the individual during that gap. Only if the individual books a hotel room for at least 91 days continuously in a tax year also subject to the 16 day rule referred to above will it be treated as being available accommodation under the test.
 
Ordinary residence will be abolished for tax purposes but there will be grandfathering provisions to ensure that individuals who currently benefit from being not ordinarily resident do not lose out following abolition of ordinary residence.
 
Clearly we need to wait and see exactly what transpires and then precisely how any Statutory Residence Test is eventually applied to Aircrew. In the meantime Aircrew, in particular, should proceed with utmost care planning ahead and reduce UK connections as far as possible to strengthen claims.

Updates will be posted as they become available but should not be acted upon before taking professional advice tailored to your exact circumstances. This will be available to our existing clients and we will gladly undertake an initial review for new contacts without obligation.

Non Resident Aircrew - UK Liability

Generally still liable to UK tax on UK trade, rental and employment income for UK duties performed (i.e. working flights, training / simulator etc). Subject of course to the provisions of relevant double tax treaties but even then Aircrew duties performed “wholly” in the UK, rather than in” international traffic,” usually remain taxable in UK after tax free allowances.

*DJS view
– Aircrew should continue to factor in the prior caveat and guidance issued by HMRC within HMRC6  being “If you spend very significant amounts of the year travelling internationally, you should keep a record both of the days you were present in the UK and of those days where you are here at midnight. Both will be factors when looking at the pattern and purpose of your visits.”

Budget - 21/03/12
 
Statutory Residence Test

Previously deferred by the Government to allow further time to finalise the details and now due to be legislated in Finance Bill 2013 to apply from 6 April 2013. Publication of summary responses to the consultation and draft legislation is anticipated shortly so do continue to watch this space for further news.

Ordinary residence
 
It is also proposed to abolish Ordinary residence for tax purposes from 6 April 2013. Overseas workday relief is to be placed on a statutory footing as currently it is a non-statutory means of apportioning earnings between duties performed in the UK and duties performed elsewhere. Aircrew have previously agreed a more precise duty calculation with HMRC based upon hours and minutes and it is envisaged by us that this should continue with details already known to you or if not then they are available upon request.
 
Capital Gains - charge on Non-resident Non-natural Persons
 
The Government will consult on a capital gains tax charge on residential property owned by non-resident, non-natural persons (ie companies /partnerships etc) along with a stamp duty land tax annual charge for high-value residential properties, for application from April 2013. As yet there does not appear to be any suggestion to extend this proposed CGT legislation to cover the sale of personally owned UK property by a non-resident individual.
 
Inheritance Tax - Spouses and Civil Partners Domiciled Outside the UK
 
Proposed increase in the IHT-exempt amount that a UK domiciled individual can transfer to their non-UK domiciled spouse or civil partner. The Government similarly proposes to allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of IHT. Legislation will be in Finance Bill 2013.
 
Full Time Work Abroad – 19/03/12
 
HMRC reiterated its new practice from 10/11 in relation to “full-time” work abroad being to accept generally that non-United Kingdom residence can be demonstrated, even though some of the duties carried out in the United Kingdom are not incidental duties, as long as such duties do not exceed 10 days in one year. This is a concessionary practice agreed by HMRC in relation to s830 only and can for some individuals help them to fast track Non Residence status after one complete UK tax year. This said do remember that a potential liability remains in respect of the UK duties performed and so further specific advice in relation to your own individual circumstances is best advised.

Statutory Residence Test – now deferred until April 2013 earliest ...

 
In perhaps a classic case of kicking the football up the pitch - David Gauke Exchequer Secretary to the Treasury within a Ministerial statement earlier today (6/12/11) indicated that:-
 
“At Budget 2011, the Government announced a package of reforms to the taxation of non-domiciled individuals and its intention to introduce a statutory definition of tax residence.
 
The consultation on tax residence raised a number of detailed issues which will require careful consideration to ensure the legislation achieves its important aim of providing certainty for individuals and businesses. The Government will therefore legislate the statutory residence test in Finance Bill 2013 to take effect from April 2013 rather than April 2012. It will introduce any reforms to ordinary residence at the same time. This will give time to consult thoroughly on the detail of these changes well in advance of implementation.
 
The Government is committed to the form of the statutory residence test outlined in consultation. It will make a further announcement around Budget 2012 when it will publish its response to the recent consultation together with a further consultation on policy detail and draft legislation.”
 
Are you fully content with your UK Tax Residence status or would you like us to review matters for you?

UK Tax Residence Update - 21/10/11
 
Earlier this week the SUPREME COURT found in favour of HMRC in a majority decision upholding the Court of Appeal's decision that Gaines-Cooper was a resident of the UK for tax purposes.
 
Not a Pilot but still of historical note and interest for some as it charts and comments upon HMRC approach regarding their own guidance in this regard and highlights the overall need to demonstrate at the very outset a distinct and clear break with the UK in relation to such a claimed departure for UK Non Residence status to be upheld.
 
IR20 was the authority's former guidance on what constitutes residency for tax purposes and although Gaines-Cooper claims to have followed the guidance, HMRC and a number of court rulings found he retained strong links to the UK, which meant he was resident. Furthermore the Supreme Court did not consider that HMRC had wavered sufficiently from its own guidance.
 
Such cases as Gaines Cooper might well have contributed to the shift in favour towards the proposed Statutory Residence Test via consultation this year (now closed) with expected publication of the questions and answers along with draft legislation by the end of November or early December.
 
Aircrew need to continue to proceed with utmost caution and further comment regarding your own individual circumstances is available upon request.

Statutory Residence Test

The Government has indicated that the current rules that determine tax residence for individuals are unclear and complicated. A consultation document with the aim of introducing a Statutory Residence Test to provide greater certainty for taxpayers was issued on the 17/06/11. The consultation phase lasts until 9/09/11 after which they intend to legislate and apply new measures from 6/4/12.

 

HMRC predict that ;- “there will be a small number of individuals whose residence status will change as a result of this test but it is not possible to calculate precisely how many will be affected.”

 

Clearly we need to wait and see exactly what transpires and then precisely how any Statutory Residence Test is applied to Aircrew. In the meantime Aircrew, in particular, should proceed with utmost care planning ahead as far as possible to strengthen claims. Tailored advice is available to existing clients and we will gladly undertake an initial review for new contacts without obligation.

 

In broad terms the proposals in part make a distinction between:-

·         Arrivers - defined as those individuals who were not UK resident in all of the previous three tax years; and

·         Leavers – defined as individuals who were resident in one or more of the previous three tax years.

The test follows progressive steps as appropriate to determine UK Residence status of individuals in relation to Income, Capital Gains and Inheritance Tax.

Perhaps of particular interest to Aircrew;-

·         Day of presence in the UK - midnights will generally still be counted.*

·         UK Work Day – for the SRT is any day during which three hours or more of work is carried out in UK.

·         Substantive UK Employment (or self-employment) -being work in the UK for 40 or more days in the tax year.

Part A contains conclusive non-residence factors that would be sufficient in themselves to make an individual not resident. For instance;-

·         not resident in the UK in all of the previous three tax years and less than 45 days in the UK during current tax year; or

·         resident in the UK in one or more of the previous three tax years and less than 10 days in the UK during the current tax year; or

·         leave the UK to carry out full-time work abroad, provided less than 90 days in the UK and no more than 20 days are spent working in the UK in the tax year.

Individuals who do not meet all the criteria for full-time work abroad, for example if they have more than 20 working days in the UK, will not necessarily be resident; they may still be non-resident under Part C.

Part B contains conclusive residence factors that would be sufficient in themselves to make an individual resident (Provided Part A of the test does not apply) if they:

·         are present in the UK for 183 days or more in a tax year; or

·         have only one home and that home is in the UK (or have two or more homes and all of these are in the UK); or

·         carry out full-time work in the UK.

Part C applies to those with more complex circumstances and whose residence status is not determined by Part A or Part B. It sets out to reflect the principle that the more time someone spends in the UK, the fewer connections they can have with the UK if they want to be non-resident. Connecting factors which will affect the number of days a person can spend in the UK with a separate sliding scale published on the Treasury web site for “arrivers” and “leavers” are:-

·         Family in the UK

·         Accommodation in the UK

·         Substantive work in the UK

·         More than 90 days presence in the UK in either of the previous 2 years

·         More time in the UK than in any other single country

Non Resident Aircrew - UK Liability

Generally still liable to UK tax on UK trade, rental and employment income for UK duties performed including work for less than 3 hrs per day (ie working flights, training / simulator etc). Subject of course to the provisions of relevant double tax treaties but even then Aircrew duties performed “wholly” in the UK, rather than in” international traffic,” usually remain taxable in UK after tax free allowances.

The relevant Treasury website link is

http://www.hm-treasury.gov.uk/consult_statutory_residence_test.htm

*DJS view – Aircrew should however continue to factor in the prior caveat issued by HMRC within HMRC6 guidance being “If you spend very significant amounts of the year travelling internationally, you should keep a record both of the days you were present in the UK and of those days where you are here at midnight. Both will be factors when looking at the pattern and purpose of your visits.”

 

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Aircrew Taxation Matters

This site provides a specialist service for all Aircrew in relation to personal UK taxation matters.

Disclaimer.....
All comments posted are to be regarded as 'general' information and should not be relied or indeed acted upon without us undertaking a specific review of your exact individual circumstances.

 

 

 

 

 

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