Non-domiciled Individuals – the Remittance Basis explained
Posted on 18th July 2021 at 15:11
The Remittance Basis is an alternative tax treatment that is available to individuals who are resident but not domiciled in the UK.
Domicile is explained here
Individuals who are domiciled in the UK must report and pay tax on their worldwide income (know as the arising basis of taxation). Individuals who are non-domiciled can elect to be assessed on the Remittance Basis “RB” basis. The RB basis of taxation results in an individual being liable to UK tax in the normal way on UK source income and gains and in relation to foreign income or gains, liability is calculated by taxing only the income and gains that are brought into “remitted” into the UK.
The election must be made on the tax return and it is important to consider how a remittance can occur.
What is a Remittance?
Foreign income and gains are remitted to the UK if they or something deriving from them are:
Brought to, or received in, or used in the UK by the relevant individual or another relevant person (someone related to that person)
Brought to, or received in, or used in the UK for the benefit of the taxpayer or another relevant person
Used to pay for a service provided in the UK by the individual or relevant connected person
Used outside of the UK for a relevant debt in the UK
How is the tax charge calculated?
There are very specific ordering rules to determine what source of funds are remitted to the UK if a remittance is made from an account containing several difference sources of funds, for example a mixture of income, capital gains and “clean capital”.
Clean capital are funds that have been earned before a taxpayer becomes resident in the UK or funds that have been inherited or gifted to that person.
As a very high level summary, HMRC will deem income to be remitted ahead of capital gains with clean capital remitted last.
What should I consider?
An individual who is claiming the remittance basis must have a special account containing a minimal amount of income so that the account can be “nominated”. This is due to the ordering rules which are described above and is a complex area of taxation.
It is very important to consider structuring overseas accounts correctly so that income, capital gains and clean capital can be separated. If an individual structures their accounts before they become resident in the UK then this offers the most favourable potential set of circumstances from a tax perspective.
Please do contact us if you are currently a remittance basis user or an individual who is looking to move to the UK in the future.
Questions or queries?
Please do let us know if you have any questions or if you need any further help understanding the rules. – please call us on 01932 564098 or message us here.
Information correct at time of publication
This article was produced in July 2021 – please always check with Fuller Spurling that information is current, up to date and applicable to your situation.
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