International

Summary of recent changes

There have been a number of developments in recent months which have the potential to impact on internationally mobile workers in the UK. This note highlights some of the more important points.

50 percent tax rate

A new top income tax rate of 50 percent is due to be introduced from April 2010 for all individuals with UK taxable income in excess of £150,000.

Where the employer pays the individual’s UK liability under a tax equalization scheme this will result in increased tax costs for the employer. Such increased costs mean that it is now of even greater importance that assignments are structured efficiently to ensure maximum tax relief can be claimed for the assignment costs and, where applicable, non UK duties.

Subject to commercial considerations employers may move to rewarding staff with certain share based incentives as an alternative to cash remuneration which can assist both in cash fl ow and, provided structured correctly, could reduce the overall tax burden.

HMRC interpretation on ordinarily resident status Individuals who are resident, but not ordinarily resident (RNOR) in the UK do not pay UK tax on income fromemployment performed outside the UK where the salary in respect of those duties is paid and retained indefinitely offshore.

An individual would typically be treated as RNOR where, upon arrival in the UK, they had no intention of remaining here for greater than three years. Historically the individual would only become resident and ordinarily resident (ROR) if they were still in the UK on the 6 April following the third anniversary,

or if a change of intention was earlier they would be ROR from the 6 April immediately before the intention changed.

Following two recent court case victories, HM Revenue & Customs (HMRC) has changed its guidance on the issues of UK tax residence and ordinary residence. The most important change is that an individual is likely to be treated as ROR from the 6th April immediately before the third anniversary of their arrival to the UK.

Claiming the ‘remittance basis’ of taxation and loss of personal allowance

In general, a taxpayer who claims the remittance basis of taxation will only pay UK tax on income or gains that are attributable to the UK. Any overseas income or gains would only be liable to UK tax if remitted to the UK.

Effective from 6 April 2008, individuals who wish to claim the remittance basis of taxation, either because they are RNOR or not domiciled in the UK will be penalised by losing their entitlement to personal allowances where their non-UK source income and gains exceed £2,000 per tax year.