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New rules for general earnings

»Ê¹ÚÌåÓýapp new rules relating to residence and domicile introduced by Finance Act 2008 bring all UK-resident individuals within the scope of ITEPA03/S15 with effect from 6 April 2008.

However, for those individuals who are not domiciled in the UK (non-dom) for a tax year, or, before 6 April 2013, are either non-dom or are not ordinarily resident in the UK (NOR) in a tax year, the remittance basis may apply for that tax year, either by a claim under ITA07/S809B, or by sections 809D or 809E.

Under the remittance basis, the chargeable overseas earnings of an individual who is non-dom for that year are charged in accordance with ITEPA03/S22 and the foreign earnings of an NOR individual (from 6 April 2013: an individual who meets the requirements of section 26A) are charged in accordance with ITEPA03/S26. Broadly speaking, sections 22 and 26 provide that those earnings are only subject to UK income tax if they are remitted to the UK. ITA07/S809L provides the rules on the meaning of ‘remitted�. (See ERSM161100 for guidance on the employment-related securities aspects of the new remittance rules.)

Application of Part 7 ITEPA to all UK residents

Prior to 6 April 2008, individuals who were resident but not ordinarily resident in the UK were subject to the provisions of Chapters 3A to 3D of Part 7 ITEPA, by virtue of ITEPA03/S421E(2). However, they were not subject to the provisions of Chapter 2, 3 or 4 of Part 7, because of ITEPA03/S421E(1). (See ERSM160200)

For example, when they acquired forfeitable shares, the rules in Chapter 2 of Part 7 did not apply to them so they were potentially subject to a general earnings charge at the time of acquisition. However, when the forfeiture restriction lifted, they were not subject to Chapter 2 so there was no specific employment income charge.

Because of the amendments made to ITEPA03/S421E by Finance Act 2008, for employment-related securities acquired on or after 6 April 2008 (except those acquired pursuant to a securities option acquired before 6 April 2008), all UK-resident individuals are within the scope of Chapters 2 to 4 of Part 7 ITEPA 2003.

Similarly for options, prior to 6 April 2008, individuals who were NOR were not subject to the provisions of Chapter 5 because of ITEPA03/S474(1).

»Ê¹ÚÌåÓýapprefore when they acquired an option, the rules in Chapter 5 of Part 7 did not apply so they were potentially subject to a general earnings charge at the time of acquisition on the money’s worth of the option (see ERSM110110). When the option was exercised, again, the rules in Chapter 5 did not apply. However, the rules in Chapter 3C were often triggered so that the option gain was treated as a notional loan.

Because of the amendments made to section 474 by FA 2008, for employment-related securities options acquired on or after 6 April 2008, all UK resident individuals are within the scope of Chapter 5 of Part 7 ITEPA 2003.

Extended time limit for section 431 elections

Where restricted securities are acquired in the period 6 April to 31 July 2008 inclusive, and Chapter 2 of Part 7 of ITEPA applies to them by virtue only of the provisions of Schedule 7, then section 431 ITEPA elections may be made no later than 14 August 2008. »Ê¹ÚÌåÓýapp election means that employers and employees have the choice of opting out of Chapter 2 and the extension of the time limit ensures that people newly brought into the rules in Part 7 ITEPA have the opportunity to make section 431 elections after the new rules in Schedule 7 came into force when Finance Act 2008 received Royal Assent - on 21 July 2008.