Chapter 39 The remittance basis

Question 1

the remittance basis, rates of tax and personal allowances

Answer 1

Individuals resident and non-domiciled the UK are usually taxed on an arising basis. However, a claim can be made to be taxed on the remittance basis, then the income will only be taxed if the money is brought into the UK. You must make a claim every year to use the remittance basis. Individual’s can opt out of the remittance basis year-by-year if they wish. If a non-domiciled taxpayer has foreign income which is taxed in the UK, he will receive credit in the UK for the foreign tax paid. Once an individual claim to use the remittance basis for a particular tax year, the foreign income of that tax year will be taxable in any future year in which is it remitted to the UK.
Rates of tax on remitted income – where income is taxed on a remittance basis, it is always taxed as non-savings income. The starting rate for savings income, the dividend allowance and the savings allowance does not apply to foreign interest remitted to the UK. Any foreign dividends will be taxed at 20%, 40% and 45%. The dividend remitted must be grossed up to take account of any foreign withholding tax which is actually deducted from the dividend.
Restriction of personal allowances where remittance basis claimed – where the remittance basis is claimed, no personal allowances or tax reducers for married couples will be available for that tax year. the individual will not be entitled to the annual exempt amount for capital gains tax. This means non-domiciled taxpayers with foreign income in excess of the personal allowance is better off claiming to use the remittance basis.

Question 2

using the remittance basis without a claim, meaning of remittance to the UK

Answer 2

Using the remittance basis without a claim – where an individual’s unremitted foreign income and gains are less than £2,000 the remittance basis applies automatically. This is the total foreign income and gains for the tax year less amount remitted to the UK by the end of that same tax year.
Meaning of remittance to the UK – HMRC say remittance is any money which derives from offshore income and gains, which is brought to or used in the UK for the benefit of the individual or any other relevant person. A transfer of money from a foreign bank account to a UK bank account is a remittance. Also, if a non-domiciled individual incurs expenditure in the UK and pays the bill from an offshore bank account that constitutes a remittance. The following situations constitute a remittance for tax purposes:
• Assets being brought to the UK which derive from foreign income or gains
• Money or other property representing a person’s foreign income or gains being brought to the UK by a relevant person (spouse, children and grandchildren etc).
• Money or other property representing a person’s foreign income or gains being brought to the UK by a non-relevant person where the person can benefit from the money or property.