Chapter 38 Taxation of foreign income general principles

Question 1

arising and remittance basis definition, UK income and Personal allowances

Answer 1

Definition of terms –
• arising basis means that income is taxed in the year that it arises or is received. It makes no difference whether such income is brought back to the UK or kept offshore.
• Remittance basis – foreign income is only taxed in the UK if it is brought back to the UK or is enjoyed in the UK.
• UK Income – this means income deriving from a source in the UK
• Foreign Investment/foreign property income – this means interest on foreign stock, foreign debentures and foreign bank accounts and dividends from non-UK companies.
UK Income – income arises from a source in the UK is taxed on everybody, regardless of their residence status. The non-resident individual therefore will have a responsibility to file a self-assessment return and pay UK income tax.
Personal allowances – they are available to individuals that are UK resident. The following non-resident individuals may also claim UK personal allowances:
• Citizens of the EEA (EU plus Norway, Iceland and Liechtenstein)
• Residents of the Channel Islands or the isle of man
• Employees (past and present) of the British Crown
Some individuals will pay UK income tax who are not UK resident and will have no personal allowance.

Question 2

foreign income domiciled and not domiciled and not resident

Answer 2

Foreign Income: Resident and Domiciled in the UK – this is taxable on the arising basis. They will be chargeable to UK tax on dividends received from non-UK resident companies. If foreign income is taxed in the overseas country, credit is given for all or part of the foreign tax when calculating the UK tax liability.
Foreign Income: Resident but not UK domiciled – the foreign income will be taxed on the arising basis, but a claim for the remittance basis can be made. This may apply in the case of a foreign national living in the UK but will return to their homeland in the future. A claim for the remittance basis means the individual will only pay tax on his foreign income if he brings it into the UK.
Foreign Income: Not resident in the UK – foreign income arising to non-resident individuals is not taxable in the UK.
Summary:
UK Income Foreign Income
Resident and domiciled Arsing Arising
Resident and non-domiciled Arising Arising (possible remittance basis claim)
Not resident arising NOT TAXABLE