What is a ‘remittance’?
Non-doms can potentially enjoy favourable tax treatment through the ‘remittance’ basis of taxation. This is claimed on a UK tax return.
‘Remitted’ refers to how foreign income or gains are brought to, used in or received in the UK.
Typically, taxation of a remittance relates to the source of funds.
An individual who is resident but not domiciled in the UK is subject to UK Income tax and Capital Gains Tax. But foreign income and capital gains are only applicable where the monies are ‘remitted’ to the UK.
For remittance to arise, property, money, or consideration for a service must be brought into the UK for the benefit of a relevant person. The funds for that property, money or consideration must be derived directly or indirectly from the overseas income and gains.
Non-doms are able to decide annually whether to claim on a remittance basis.
When can a taxable remittance arise?
Taxable remittance can arise where monies are physically brought to the UK from overseas, as well as many other circumstances including repaying a loan made in the UK; bringing to the UK assets which have been purchased overseas, paying for a service overseas provided in the UK.
We can advise on your specific non dom tax circumstances and whether these will be considered to fall under taxable remittance.
Do any charges apply for remittance?
Where certain criteria are met, charges do apply to the remittance basis of taxation.
It is free of charge to claim for the remittance basis until one has been resident in the UK for 7 out of the previous 9 tax years. After that an annual charge known as remittance basis charge applies.
For non-doms who have been resident in the UK in at least seven out of the last nine tax years, a £30,000 remittance basis charge is payable to access the remittance basis.
This charge increases to £60,000 for non doms who have been UK resident in some part of 12 or more of the last 14 tax years.
From 6 April 2017, non-doms who have been UK tax resident in at least 15 of the last 20 UK tax years will be treated as domiciled (“deemed domiciled”) in the UK. They will then no longer to able to claim the remittance basis.
Given the levels of these charges, the remittance basis may not necessarily be helpful for non-doms. However, the fact that one only has to claim the remittance basis only by 31 January following the relevant tax year means one has all the information on which to determine the cost v benefit of making such a claim.
It may be possible to structure investments so that income or gains are protected from UK without claiming the remittance basis. This is particularly relevant for those who are liable to the remittance basis charge, or approaching ‘deemed domicile’ status.
It may also be necessary to income and gains from offshore into the UK, often to buy a UK property or to fund other spending in the UK.
Careful planning is essential to ensure that a remittance of funds to the UK is as tax-efficient as possible.
Are there any exemptions and reliefs available on taxable remittances?
Taxable remittance in respect of non dom tax should not arise for a number of exempted items.
- personal items purchased outside the UK using overseas monies brought to the UK for personal use (e.g. jewelry, clothes);
- overseas monies used to invest in certain qualifying UK businesses, which may include an individual’s own company – known as Business Investment Relief (“BIR”);
- works of art purchased outside the UK using overseas monies brought to the UK and made available for public access;
- property purchased outside the UK using overseas monies brought to the UK with a value of less than £1,000; and
- overseas monies used to pay the annual £30,000/£60,000 remittance basis charge directly to HMRC.