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PERSONAL INCOME TAX

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A person is resident in UK for a given tax year if he/she either: ... be paid gross where the deposit-taker is given a written declaration that the ... – PowerPoint PPT presentation

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Title: PERSONAL INCOME TAX


1
PERSONAL INCOME TAX
Theory and practice of taxation AModule code
C33TA1 Lecture 14
  • OVERSEAS ASPECTS

2
RESIDENCE AND DOMICILE
  • A taxpayers
  • Residence
  • Ordinary residence
  • Domicile
  • have important consequences in establishing the
    taxation treatment of his UK and foreign income

3
RESIDENCE
  • Tests for determining residence
  • A person is resident in UK for a given tax year
    if he/she either
  • Is present in UK for 183 days (exclude days of
    arrival and departure)
  • Makes substantial annual visits to UK (Visits
    averaging 91 days per year)
  • A person is regarded as either resident or not
    resident for the whole tax year (for exceptions
    see later)

4
ORDINARY RESIDENCE
  • Ordinary residence implies a greater degree of
    permanence than residence
  • Status of ordinary residence will help to
    determine residence
  • Thus presence for 183 days establishes
    residence(see above)
  • But if not present for 183 days the person who is
    ordinarily resident will still be regarded as
    resident
  • To establish non residence the person who is
    ordinarily resident will have to go abroad for
    a full tax tear.

5
Residence - examples
  • John comes to work in the UK on 22 June 2006 and
    returns permanently abroad on 28 February 2007
  • Liam and Natalie work in Kuwait from 1 April
    2006. Liam returns to the UK on 31 March 2007.
    Natalie returns one week later on 7 April.
    Otherwise they have never been outside the UK
  • What is the residence status of John, Liam and
    Natalie for 2006-07?

6
Residence
  • Residence not applicable for whole year
  • Year of arrival when a person takes up permanent
    residence or comes to stay in UK for at least 2
    years
  • Year of departure when a person leaves the UK for
    permanent residence abroad, or to live abroad for
    at least 3 years or
  • In the years of departure and return if a person
    takes up employment abroad under a contract for
    at least a whole tax year
  • NB a spouses residence is not governed by the
    other spouses status.

7
Residence
  • Natalie revisited (Contract 1/4/06 to 7/4/07)
  • Explain her residence status for the 3 years
    2005-06, 2006-07 and 2007-08

8
RESIDENCE
  • RESIDENCE coming to UK
  • A person whose home was abroad and who comes to
    UK to live permanently, or for at least 3 years
    is regarded as resident from their date of
    arrival
  • A person who comes to UK to work for at least 2
    years is treated as resident for the whole period
  • A person who comes to UK and does not intend to
    stay for at least 3 years is treated as
    ordinarily resident from 6 April following the
    3rd anniversary of his arrival (residence will be
    established each year by 183 day rule or 91
    average)

9
RESIDENCE
  • RESIDENCE leaving UK
  • A person who has been (ordinarily) resident is
    treated as remaining so if he goes abroad for
    occasional periods(lt 1 tax year)
  • If a person goes abroad under a full-time
    contract where
  • (a) His absence from UK is for a period which
    includes a full tax year and
  • (b)Interim visits to UK do not amount to 6 months
    or more in any one tax year or 3 months or more
    per tax year on average
  • He is normally regarded as not (ordinarily)
    resident for the whole period of the contract (
    same applies to accompanying spouse)

10
DOMICILE
  • DOMICILE
  • Domicile of origin (acquired at birth - normally
    fathers) - retained until individual acquires
  • domicile of dependence (if under 16 and fathers
    domicile changes)
  • domicile of choice - can only be acquired by
    persons over 16 - must sever ties with country of
    previous domicile and settle (permanently) in
    other country

11
IncomeGeneral rules
  • If resident in UK liable to UK tax on all income
    (UK and foreign)
  • If not resident in UK liable to pay UK tax on UK
    income only
  • If resident but not domiciled, or not ordinarily
    resident, only charged to tax when income is
    brought into the UK. The remittance basis
  • If tax year is split into resident and non
    resident then the appropriate set of rules will
    apply to the two periods

12
OVERSEAS ASPECTS The rules applied 1
  • ALLOWANCES
  • Generally, non-residents are not entitled to
    allowances
  • EXCEPT
  • Citizens of EEA and Commonwealth countries
  • Residents of Isle of Man and Channel Islands
  • Current/former Crown servants and their
    widow(er)s
  • Former residents who have left for health
    reasons
  • Missionaries
  • applies to both Income and Tax reducing Allowances

13
EMPLOYMENT INCOME
  • Amount taxable depends on
  • Residence status
  • Where duties are performed - UK or abroad

14
Employment Income and Residence
15
Foreign Income
  • Interest from overseas investments
  • eg foreign securities
  • Foreign possessions
  • eg dividends, pensions, profits from trades and
    rent from property

16
Foreign Income
  • Basis of assessment
  • Must be resident
  • If resident but not ordinarily resident, or not
    domiciled
  • Remittance basis
  • Otherwise (ie resident and ordinarily resident
    and domiciled)
  • Tax on a current year basis calculating income
    (generally) in the same way as if it had arisen
    in the UK

17
TRAVEL EXPENSES FOR WORKING ABROAD
  • Employee
  • resident and ordinarily resident inUK
  • duties of employment performed wholly abroad
  • Employer may provide (no benefit)
  • travel from and to UK at start and end of
    appointment
  • return journeys during the employment (any
    number)
  • employees board and lodging costs
  • two return journeys for spouse and children
    (under 18 at start of journey) provided absence
    at least 60 days

18
TRAVEL EXPENSES FOR WORKING ABROAD
  • Employee bears travel expenses himself
  • only the costs relating to travel at the
    beginning and end of the appointment are
    deductible expenses

19
Double taxation relief
  • Double taxation agreements
  • Made with many countries to avoid income being
    taxed twice
  • eg dividends from abroad

20
Unilateral double taxation relief
  • Where no double tax agreement UK gives
    Unilateral double taxation relief for foreign
    tax suffered
  • Lower of
  • foreign tax suffered and
  • UK tax due on foreign income
  • UK tax due on foreign income is difference
    between
  • Tax due on total income (including foreign
    income) and
  • Tax due on income excluding foreign income

21
Unilateral double taxation relief
  • Example
  • Margot a UK resident has the following income in
    2006-07

  • UK salary
    40,000Rents from
    foreign property (net of 20 withholding tax)
    8,000Calculate UK income tax for
    2006-07

22
Unilateral double taxation relief
  • Margot income tax 2006-07

  • Employment Income
    40,000Foreign income (8,000 x 100/80) 10,000

    50,000Less personal allowance
    5,035Taxable income
    44,965

23
Unilateral double taxation relief
  • Margot Income tax 2005-06 2,150 _at_ 10
    215.0031,150 _at_ 22
    6,930.0011,665 _at_ 40
    4,666.0044,965
    11,811.00Less double tax
    relief, lower of(a) foreign tax (2000)
    2,000.00(b) UK tax on foreign income
    (40 10,000)UK tax liability
    9,811.00

24
Tax Planning When Working Abroad
  • The following points highlight the pitfalls and
    planning possibilities to be considered when
    going to work abroad
  • Timing is vital. Leaving just before the end of
    a tax year may enable the taxpayer to spend a
    complete year outside the UK so qualifying for
    non-resident status
  • Insurance policies are available to cover the
    risk of extra tax liabilities should an early
    return to the UK be necessary.

25
  • If the employer bears the cost of board and
    lodging abroad, this will represent a tax-free
    benefit. The employee may visit home as many
    times as he likes without the costs being taxed
    as benefits. Likewise, for absences of 60 days
    or more, travelling expenses for a spouse and
    minor children are also tax-free if paid or
    reimbursed by the employer. Up to two return
    visits per person per year are allowed.
  • Where the remittance basis applies it may be
    advisable to keep funds abroad separate so that
    it can be proved that sums remitted to the UK are
    capital (not subject to income tax) or income
    from a specific source.

26
  • Having established non-residence in the UK, any
    UK investments should be reviewed to ensure they
    are still tax effective.
  • Bank and building society interest, may be paid
    gross where the deposit-taker is given a written
    declaration that the recipient is not ordinarily
    resident in the UK.
  • Consider carefully the tax system in the foreign
    country concerned and the terms of any double
    taxation agreement. The UK has such agreements
    with most countries they contain rules on where
    income and gains are to be taxed, and on other
    matters.
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