Annex 1: Minor changes in the law made by the Act: Change 132: Foreign income: special rules: relevant foreign income charged on remittance basis: conditions for claim: sections 831 and 857(1)
This change makes a minor alteration to the rules in section 65(4) of ICTA (remittance basis) to remove the citizenship condition so that any person who is not ordinarily resident in the United Kingdom is entitled to make a claim.
Section 18(3) of ICTA charges tax on income of a person resident in the United Kingdom which arises from securities (Schedule D Case IV) or possessions (Schedule D Case V) outside the United Kingdom. Section 65 of ICTA contains the rules for calculating the amount of income within Schedule D Cases IV and V that is chargeable to tax. Tax is charged on the amount of the income arising in the tax year unless the person chargeable under section 59 of ICTA meets one of the conditions set out in section 65(4) of ICTA and makes a claim. If one of those conditions is met and a claim is made, tax is charged on the amount of the income received in the United Kingdom. The first condition is that the person is domiciled outside the United Kingdom. The second condition is that the person is both not ordinarily resident and a citizen of the Commonwealth or the Republic of Ireland.
The restriction of the second condition to citizens of certain countries is thought to have little practical effect. Citizens of other countries who are resident, but not ordinarily resident, in the United Kingdom are very unlikely to have their domicile in the United Kingdom. And, if they are not domiciled in the United Kingdom, they will meet the first condition, regardless of where they are ordinarily resident. In addition, restricting the second condition to citizens of certain countries might be argued to involve discrimination.
Therefore, in order to simplify the second condition and to ensure equality of treatment for all citizens who are not ordinarily resident in the United Kingdom, section 831(4) rewrites the second condition without the reference to citizenship of certain countries.
This change affects not only section 831 but also those provisions that refer to meeting the conditions in that section. See, in particular, section 857 and the definition of when the remittance basis applies to a person in section 878(2). Section 857 (partners to whom the remittance basis applies) is based on section 112(1A) of ICTA which repeats the conditions found in section 65(4) of ICTA. The definition of when the remittance basis applies to a person is required for various sections in Part 3 of this Act relating to overseas property income. See in particular sections 269(3) and (4), 357 and 358.
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.