Expatriate taxation - CIOT - The Chartered Institute of Taxation

CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION
7.18 Although the SP is solely to do with CGT, the principle of comparing tax
against tax when computed by reference to the same quantum, be it income
tax, capital gains tax or even payroll tax, is clear. However, it is not clear that
relief will always be given on an equitable basis if there is tax in two or more
jurisdictions based solely upon SP 6/88.
7.19 A far more tricky issue for the expatriate is the fact that the tax rules drawing
up the taxable amount of income will differ between countries. An example is
the fact that the taxable income in the home country may be reduced for, say,
alimony and pension scheme deductions, neither of which would attract tax
relief in the UK. It would be logical to ignore such factors but, strictly
speaking, they should be taken into account.
c) Taxed at different times
7.20 Because the tax has to be paid in order for there to be a credit against UK
tax, there will always be a delay and extra administration for expatriates
working in the UK. This is especially so when the tax payment dates differ
between the UK and the other country. Income received in March 2006 will
be paid as PAYE in the UK, and any balance due is paid with the tax return in
January 2007. The US tax will be paid when the 2006 calendar year tax
return is filed, and this could be as late as January 2008 depending on when
the expatriate has arrived in the UK and filing extensions. It is worthy of note
that US expatriates get an extension in filing their first year’s return until 13
months after the end of the tax year, something for the Carter Report review
team to consider.
d) Top slice or average rate for the home country
7.21 The rate of tax which is applied to the home country income can make a
material difference to the level of tax relief granted. Where countries have
higher marginal rates than the UK, the relief can be calculated easily by
reducing the effective rate to 40%. But where the rates start low and finish
above 40%, the calculation is not so easy. Rates change all the time around
the world, so a fictitious set of rates shows the principle.
UK
First £5,000 0% 0%
Next £2,500 10% 10%
Next £2,500 20% 10%
Next £10,000 20% 15%
Next £10,000 20% 20%
Next £25,000 40% 25%
Next £50,000 40% 30%
Balance 40% 35%
Otherland
Peter Ashby 32 6.2.07