UK tax resident, non-domiciled, individuals who are taxed on the remittance basis, are not required to pay UK income tax and/or UK capital gains tax on foreign income and gains, as long as these are not remitted to the UK.
It is, however, crucial to ensure that this tax benefit is properly claimed. Failure to do so means that any planning undertaken by the individual might be ineffective and he/she might still be taxed in the UK, on a worldwide ‘arising’ basis.
For more information on domicile, residence and the effective use of the remittance basis please see Information Note 253.
Claiming the Remittance Basis
Taxation under the remittance basis in most cases is not automatic.
An eligible individual must elect this basis of taxation on his/her UK self assessment tax return.
If this election does not take place, the individual will be taxed on the ‘arising’ basis.
How to Claim the Remittance Basis on a UK Self Assessment Tax Return
The taxpayer must claim the remittance basis in the appropriate section of his UK self assessment tax return.
Exceptions: When You Do Not Need To Claim
In the following two limited circumstances, individuals are automatically taxed on the remittance basis without making a claim (but can ‘opt out’ of this basis of taxation if they wish to do so):
- Total unremitted foreign income and gains for the tax year is less than £2,000; OR
- For the relevant tax year:
- they have no UK income or gains other than up to £100 of taxed investment income; AND
- they remit no income or gains to the UK; AND
- either they are under the age of 18 OR have been UK resident in no more than six of the last nine tax years.
What Does this Mean?
Mr Non-Dom moved to the UK on 6 April 2021. Prior to moving to the UK he researched “uk resident non-doms” online and read that he should be able to live in the UK on the remittance basis of taxation.
He therefore realised that if monies from the £1,000,000 bank account that he already held outside the UK were remitted to the UK, these monies would be tax free. He also realised that £10,000 of interest and £20,000 of rental income that he had received from an investment property outside of the UK would also benefit from the remittance basis and not be taxed in the UK.
He did not feel he had a UK tax liability and therefore did not correspond at all with Her Majesty’s Revenue & Customs.
He did not formally claim the remittance basis and therefore the full £30,000 of non-UK income (interest and rental) was taxable, in the UK. Had he properly claimed the remittance basis, none of it would have been taxable. The tax cost was significantly higher than the cost of filing a tax return.
Summary and Additional Information
The remittance basis of taxation, which is available for non-UK domiciled individuals, can be a very attractive and tax efficient position, but it is crucial that it is properly planned for and formally claimed.
If you require additional information on this topic, further guidance regarding your possible entitlement to use the remittance basis of taxation, and how to properly claim it, please contact your usual Dixcart adviser or speak to Paul Webb or Peter Robertson in the UK office: firstname.lastname@example.org.