The new UK Statutory Residence Test which had been expected to come into force in April 2012, has been delayed by a further 12 months.
The UK Government has now published the draft legislation for the Finance Act 2012.
Of significant note was the decision to omit a key objective, namely the proposed UK Statutory Residence Test, which had been expected to come into effect from April 2012. However, the test has not been abandoned altogether, but is simply being put back a further 12 months.
The ministerial statement explains:
"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".
We believe that the Government has made the correct decision to delay the implementation of the new proposals, on the basis that the commitment to achieve a much needed statutory test for residency remains. The new rules are of such significance and potential value, that an additional 12 months to get things right and remove any ambiguity or uncertainty would appear to be a wise move.
The new target is to introduce the proposals in Finance Act 2013, although it remains to be seen as to how much the draft consultation set for April 2012 has changed by then. We anticipate that this is more a case of agreeing “key definitions” than making any significant changes to what was a very successful consultation process.
One thing that has remained within Finance Act 2012 is the change to the non domicile rules, which will introduce a new £50,000 Remittance Basis Charge from 6 April 2012 where an individual has been resident in the UK for more than 12 of the previous 14 years and wishes to use the remittance basis to exempt non UK income. The annual charge for non domiciles that have been resident for more than 7 out of the previous 9 years (but less than 12) will remain at £30,000. Those choosing not to pay the Remittance Basis Charge will simply continue to report worldwide income on an arising basis.
New rules will also allow the tax free remittance of income where this is used for "business investment" in the UK, although many of the restrictions in the original consultation document appear to remain and this may not be as straightforward as first envisaged.
One other welcome change is the introduction of legislation which will remove the UK tax charge on potential gains on withdrawal of funds in bank accounts denominated in a foreign currency. This simplification will apply to domiciled and non-domicile individuals.