by Sue Adams, 26 January 2016
Many individuals resident in the UK on a long term, but not permanent basis, are 'domiciled' in another country. As such, they are entitled to pay income and capital gains tax on their foreign income and capital gains on the 'Remittance Basis'. This can often be sensible option, but the rules and charges involved are set to change this year so it’s important to plan ahead.
What is the Remittance Basis?
For individuals who have UK residency on a long term basis, but remain non UK domiciled, opting to use the Remittance Basis means that although they pay full income and capital gains tax on their UK income and gains (without the benefit of a personal allowance or a capital gains tax annual exemption) they pay UK tax only on that proportion of their foreign income and gains which they bring into and use in the UK.
'Remittance' is a widely defined word and covers far more than a straight bank transfer to the UK – it can be applied to all sorts of transactions which inadvertently amount to and are deemed to be transfers of income or capital.
How much are Remittance Basis charges and how are they changing?
The use of the Remittance Basis is not free, and the charges associated with it are set to change:
- Where an individual has been resident in the UK for 7 out of the last 9 tax years, they will have to pay a charge of £30,000 to be able to use the remittance basis.
- If he has been resident for 12 out of the last 14 tax years, the charge is £50,000 (and from 6 April 2015, this increases to £60,000).
- There is also a new charge from 6 April 2015 for those resident for 17 out of the last 20 tax years, who will be charged £90,000 in order to use the remittance basis.
As a result, many resident non UK domiciled individuals will need to reconsider whether it is still a sensible option to use the remittance basis and for some it may be cheaper to provide full details of all foreign income and gains in their annual tax return and pay UK tax on an arising basis.
What other changes are coming?
At present it is possible to claim the remittance basis at the end of each tax year, and to change from year to year depending on the circumstances. The Chancellor is now considering a further amendment to the rules, so that it will be necessary to elect to use this method of taxation for a minimum period of 3 tax years. This is not yet confirmed but if it is brought in, it will be likely to have a serious impact on the use of the remittance basis and will make careful planning essential.
Steele Raymond has a dedicated team of tax specialists. If you require any further information on this subject, please do not hesitate to contact Sue Adams, a Partner in the Tax team on 01202 204 561 or firstname.lastname@example.org.