Remittance basis Flashcards
What is the statutory ordering rule for mixed fund
If an individual has a foreign bank account with mixed fund then any remitted income will be treated in the following way:
UK employment income
Untaxed foreign income
Untaxed foreign capital
Taxed foreign income
Taxed foreign capital
CY then go back to PY
Worst first system
Untaxed first so no DTR can be applied
Income before capital as higher rates
What is the best advice for UK domiciles who have multiple sources of foreign income and who claim the remittance basis
Keep serpeate foreign bank accounts.
1. clean capital (money received prior to being UK resident)
2. Proceeds from capital disposals
3. Foreign income
Remit in this order first.
When does the remittance basis apply automatically. What is the important thing to remember regarding the automatic remittance basis
When UNREMITTED foreign income and gains is less than £2000. No need to make a claim, automatic, personal allowance and annual allowane can still be claimed
e.g Foreign income of 4000, remitted income of 2500 therefore unremitted income 1500 < 2000
Define remittance to UK
Any money or other property which is, or which derives from your offshore income and gains which are brought to, received or used either directly or indirectly in the UK for your benefit or the benefit of any relavant person
Who is a relevant person
Spouse/ civil partner (including unmarried couples who live together) Minor children or granchildren
What typically is exemempt property
Clothing footwear, jewellery and watched used for personal use or by a relevant perosn
Assets costing less than £1000
Property that is not in the UK for more than 275 days
Exaplain gifts to family:
Explain gifts to a non relevant person
classed as remitted income if the gift is made to a relevant person (Spouse/ civil partner/ unmarried couple or minor child or grandchild)
As long as the individual does not benefit from that gift made to the non relevant person eg. house gifted to Dad.
Expalin what is meant by relevant debt
An individual takes out a loan from a foreign bank. The loan is then used to fund a business in the UK. The individual uses their foreign income to pay the monthly payments on the loan.
Those monthly payments are classed as remitted income
Sally buys a house in france for £100,000 using £80,000 of unremitted income 2018/19, £20,000 of money gifted to him.
She later sells the house for £150,000
If she remits £60,000 into the bank how will this be taxed
The fund in the bank are made up of
80,000 income
20,000 clean capital
50,000 proceeds from capital
If she remits 60,000 into UK
50,000 capital
10,000 income
Remittance or not?
Gold watch costing £1500 given to brother for wedding gift
IPad costing £250 used by teenage daughter
Tiffancy earring costing £2000 for wife
£5000 transfered to wifes bank account
Gold watch - not remittance, gift to a non relevant person
Ipad - Exempt as item under £1000
Earring - Jewellery exempt as used for personal use of a relevant person
£5000 remittane, used in UK by relevant person
When does a the remittance basis charge apply
To an individual who is:
Over 18
made a claim for the remittance basis
Has been a UK resident for at least 7 out of the previous 9 tax years
£30,000 charge applies
or if has been a uk resident for at least 12/14 previous tax years then a £60,000 charge applies
How can a taxpayer pay the remittance charge, explain tax planning. Remember ?
If the charge is paid directly from a foreign bank account to HMRC then this is not treated as a remittance. Must be a direct transfer.
Adviced to pay from a mixed fund or an foreign income fund rather than capital or clean capital.
What to thing to state to get marks
Does the remittance charge apply ? Have they been resident for 7 of the previous 9 tax years or 12 of the 14
Is the remittance basis automatically applied. Is the unremitted income less than £2000 if so automatic
General rule when not to apply remittance basis
When foreign income does not exceed the personal allowance and no foreign gains are realsied.
