HMRC concessions on offshore bank accounts

There has been clarification by HMRC on the taxation of certain capital gains tax losses from transactions on foreign currency bank accounts as well as two new concessions.

The losses referred to are those which arise where remittance basis users make a remittance that comprises or includes remitted foreign income.  This will affect individuals who are UK resdient but non-UK-domiciled, who bring income or gains into the UK. Generally, to benefit from the remittance basis they will need to pay the £30k annual charge unless (for example) they have only been in the UK for less than 7 out of the last 9 tax years.

For the purposes of capital gains tax, an overseas bank account held in a foreign currency is a chargeable asset.  However, if the total net gains that arise from these transfers is equal to or less than the annual exempt amount, there will normally be no capital gains tax to pay.  In most cases, individuals who choose to be taxed on the remittance basis will lose that exempt amount and have to report the capital gains tax payable on any movements between such accounts when completing their self assessment returns if those gains are remitted to the UK.  Recognising that this might involve significant administrative obligations, HMRC have published various methods designed to reduce these difficulties. Please contact our Wealth Management team for more info.

In addition, starting from 2008/9 where there are many transactions to take into account and the amount of net gains from transfers from overseas non-sterling bank accounts remitted to the UK is less than £500 in any tax year, individuals will not be required to report such gains on their tax returns.

HMRC have also agreed that a practice under which all bank accounts in a particular foreign currency may be treated as a single account in certain circumstances will extend to individuals who are not domiciled in the UK.  They will be able to treat their offshore bank accounts in a particular foreign currency as a single account.  They can therefore ignore transfers between accounts.  This won’t apply to transfers between UK and non-UK accounts.

These two concessions have effect from 6 April 2008. While they will reduce the future administrative burden, in the short term non-domiciliaries may need to review tax returns already submitted for the year 2008/2009. Please contact James Odds if you would like to discuss this.