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View the related Tax Guidance about Remittance basis

Remittance basis ― overview

Remittance basis ― overviewSTOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules will still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.This guidance note introduces the remittance basis of taxation that can be accessed by certain UK resident individuals and explains what ‘remittance basis’ means. It contains links to guidance notes that discuss the concepts in more detail.Note that this guidance note discusses the legislation which applies from 6 April 2008 only, however if foreign income or gains are remitted in the current year that arose prior to 6 April 2008 then the old rules must be used, which were mostly based on case law. For the earlier rules and transitional provisions, see RDRM36000–RDRM36470 and Simon’s E6.332AA–E6.332B.This guidance note does not cover trusts. For the interaction between remittance rules and non-resident trusts, see the Non-domiciled and deemed domiciled settlors and Non-domiciled and deemed domiciled beneficiaries guidance notes. See also RDRM33590–RDRM33596.For more on non-resident trusts generally, see the UK tax position of non-resident trusts guidance note.Arising basis and remittance basisMost people in the UK are taxable on their worldwide income and capital gains on an arising basis. This means that income is taxable when it is paid to the individual or

Automatic remittance basis

Automatic remittance basisSTOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.Before reading this note, it is recommended that you read the Remittance basis ― overview guidance note to familiarise yourself with the wider remittance basis regime.Most individuals who choose to use the remittance basis have to make a claim under ITA 2007, s 809B. See the Remittance basis ― formal claim guidance note.However, in three cases, the remittance basis is given automatically. These are where, in relation to a given tax year, the individual meets any of the following tests:•they have unremitted foreign income and gains totalling less than £2,000•they are under 18 at the end of the year, have no more than £100 of UK taxed investment income, and no other UK taxable income, and do not remit any relevant income or gains to the UK *•they have been resident in the UK for not more than six out of the last nine years, have no more than £100 of UK taxed investment income, no other UK taxable income, and do not remit any relevant income or gains to the UK ** Note that these latter two

Non-domiciled and deemed domiciled beneficiaries

Non-domiciled and deemed domiciled beneficiariesIntroductionThe current tax position of non-domiciled and deemed domiciled beneficiaries of non-resident trusts is a complex landscape mapped by successive changes in the law. Before 2008, UK resident but non-domiciled beneficiaries were protected by a cost-free remittance basis option for income tax and, like non-domiciled settlors, they were exempt from attribution of capital gains within the trust. Major changes in 2008, 2017 and 2018 have incrementally brought non-domiciles into the regime under which UK domiciled beneficiaries of non-resident trusts are taxed.Changes introduced in 2008 scaled down some of the advantages of long-term non-domiciled status. The remittance basis charge was introduced to impose a cost on accessing the benefits of the remittance basis. See the Remittance basis ― overview guidance note in the Personal Tax module. At the same time, changes were made to the taxation of non-domiciled beneficiaries of non-resident trusts to bring their benefits from the trust within the scope of capital gains tax.Notwithstanding the imposition of a charge for the use of the remittance basis, public and political opinion continued to oppose the non-domiciled advantage. As a result, Finance (No 2) Act 2017 introduced the concept of deemed domicile for income tax and capital gains tax for the first time. Long-term residents of the UK, and those who were originally UK domiciled, can no longer benefit indefinitely from the remittance basis. Once they satisfy the conditions for deemed domicile, they become taxable on their worldwide income and gains.In conjunction with the introduction of

Introduction to capital gains tax

Introduction to capital gains taxIn general terms, a charge to capital gains tax arises when a chargeable person makes a chargeable disposal of a chargeable asset. The disposal may produce a profit (known as a gain) or a loss.See Checklist ― calculation of capital gains and losses for issues to consider when reporting client gains and losses.At Spring Budget 2024 the Chancellor announced a change to the rates of CGT for disposals of residential property. From 6 April 2024, the higher rate for gains from residential property are reduced to 24% from 28% so that such gains are taxed at a rate of 18% to the extent that they do not exceed the individual’s unused basic rate band and at 24% to the extent that they exceed the amount of the basic rate band. The rates for carried interest remain 18% and 28%. Chargeable personA chargeable person could be an individual, a trustee, a personal representative or a company, although companies are subject to corporation tax on chargeable gains not capital gains tax. For further discussion, see CG10700 and Simon’s Taxes C1.102. Exempt persons include, amongst others, charities (so long as the gain is applicable and applied for charitable purposes) and local authorities. See CG10760P.Generally, if an individual is resident in the UK in the tax year they are chargeable to tax on capital gains arising in that tax year. See ‘Overseas aspects’ below for a discussion on the taxation of gains on non-resident individuals and those accessing the

Remittance basis and foreign currency bank accounts

Remittance basis and foreign currency bank accountsForeign currency bank accounts are central to the operation of the remittance basis. See in particular the Remittance basis - setting up foreign accounts guidance note, but also the Remittance basis - mixed funds and When are income and gains remitted? guidance notes.Fundamental change to foreign exchange gains from 6 April 2012From 6 April 2012 foreign currency gains or losses made by individuals, trustees and personal representatives on the withdrawal of funds from foreign bank accounts are exempt for capital gains tax purposes. Generally speaking, this is welcome news for taxpayers and their advisers since:•gains on foreign currency accounts will not be taxed, and•the complexities of the previous regime have been swept awayHowever, if there is a loss on foreign currency, then there is no relief for that loss.See Example 1.Rules for tax years up to and including 2011/12The remainder of this guidance note discusses the position in tax years 6 April 2008 to 5 April 2012.For the purposes of the other remittance basis notes in TolleyGuidance, it was assumed for simplicity that there were no foreign exchange (FX) differences to be taken into account. In reality this is not the case. Some key issues relating to FX on foreign currency bank accounts in the tax years from 6 April 2008 to 5 April 2012 are covered below.Important note regarding links to legislationThe legislative links in these rest of this guidance note are for reference

Remittance basis ― overview with employment focus

Remittance basis ― overview with employment focusSTOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.Key points•provided certain conditions are met, Overseas Workday Relief (OWR) can be an extremely valuable form of tax relief for non-domiciled individuals who perform employment duties both in the UK and overseas•OWR is only available in the tax year of arrival and subsequent two tax years following a three year period of non-residence•OWR is generally calculated by reference to the percentage of days an individual spends working overseas•a bank account which qualifies for the special mixed fund rules allows for all offshore transfers to be treated as one single transfer for the year and all remittances as one single remittanceIntroduction ― the remittance basisThe default position for employees who are resident in the UK for tax purposes is that they are chargeable to income tax on their worldwide income and gains. Where an individual is not domiciled in the UK, they may be eligible to claim the remittance basis of taxation. For an individual who has been UK resident for a number of years, there are additional rules which may deem them to

Determining residence status (2013/14 onwards)

Determining residence status (2013/14 onwards)IntroductionResidence is one of the key factors you should consider when deciding whether, or to what extent, an individual is liable to tax in the UK. The other key factor is domicile.Residence refers to the individual’s tax status on a year by year basis and domicile is the place which a person regards as their true home. See the Domicile guidance note.This guidance note explains the statutory residence test (also known as the SRT), which applies from 6 April 2013. It applies for income tax, capital gains tax, inheritance tax and corporation tax (to the extent that the residence status of individuals is relevant to the latter two taxes). The statutory residence test is not used for national insurance purposes.For the implications of residence status on UK taxation, see the Residence ― overview guidance note.If the individual comes to the UK or leaves the UK but is classed as resident in that tax year under the statutory residence test, it may be possible to split the tax year into periods of UK residence and non-residence. For a discussion of split year treatment, see the Residence ― issues on coming to the UK (2013/14 onwards) and Residence ― issues on leaving the UK (2013/14 onwards) guidance notes.Residence is also discussed in detail in Simon’s Taxes Division E6.1. You may also find Tolley’s Statutory Residence Test useful.HMRC online indicatorHMRC has published an online tool that gives an ‘indicator’ of an individual’s residence position. The link to this

Tax on UK resident beneficiaries of non-resident trusts ― overview

Tax on UK resident beneficiaries of non-resident trusts ― overviewIntroductionUK resident beneficiaries of non-resident trusts are subject to UK tax on payments or benefits received from the trust. They are liable for income tax on income distributions from the trust and they may also be liable to income tax or capital gains tax on payments of capital from the trust.In contrast to UK settlors of non-resident trusts, the liability of beneficiaries is determined by the extent of their entitlement or the amounts actually paid to them. They have no UK tax liability in a year in which they have not benefited from the trust. See the Tax on UK resident settlors of non-resident trusts guidance note.This guidance note provides an overview of the tax treatment of both income distributions and capital payments, and provides links to more detailed material.Income or capitalIn order to establish which tax provision applies, one must first determine whether the payment or entitlement is of income or capital. With a non-resident trust, an income distribution is always subject to income tax in the UK resident beneficiary’s hands. A capital distribution may be subject to income tax or capital gains tax, or not subject to tax at all.The general rules, which apply equally to both UK resident and non-resident trusts, are that:•a payment out of available trust income is income of the beneficiary•a payment from capital, or from income which has been formally accumulated, is a payment of capital•exceptionally, a payment from trust

Remittance basis charge or assessment of worldwide income and gains

Remittance basis charge or assessment of worldwide income and gainsSTOP PRESS: At Spring Budget 2024, the Chancellor announced that the remittance basis would be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.This guidance note explores whether those who are entitled to use the remittance basis should do so. Before this question can be answered, the individual needs to understand:•the scope of the remittance basis•whether they have to make a claim for the remittance basis, and•whether they have to pay the remittance basis charge for making a claimThe decision as to whether to use the remittance basis is made on an annual basis. If an individual chooses not to use it, then they are taxable in the UK on their worldwide income and gains using the arising basis of assessment, as if they were resident and domiciled in the UK.This means the individual must declare all their overseas income and gains in the year in which they arise, even if none of it is brought into the UK.Who can use the remittance basis?Certain individuals are taxable in the UK on their UK income and gains alone, and pay UK tax on foreign income and gains only if these are remitted (brought) to the

Abolition of the remittance basis from 2025/26

Abolition of the remittance basis from 2025/26UK resident individuals who are not domiciled or deemed domiciled in the UK currently have the choice to pay tax on the remittance basis (meaning UK tax is only paid on foreign income and gains to the extent that these are brought to the UK in the tax year) or the arising basis (meaning UK tax is payable on worldwide income and gains arising in the tax year).From 6 April 2025, the remittance basis of taxation is expected to be abolished. This is to be replaced by a new regime linked to the number of years of UK residency called the ‘foreign income and gains’ regime (FIG).However, that does not mean the remittance basis rules can be forgotten, as advisers will still need to know and be able to apply the current rules for previously unremitted foreign income and gains that are remitted on or after 6 April 2027.These changes are to be legislated in a future Finance Bill and are not included in Spring Finance Bill 2024.The changes outlined below are based on the technical note ‘Changes to the taxation of non-UK domiciled individuals’, which was published on 6 March 2024. This guidance note will be updated as more details are released.For commentary on the current rules, see the Remittance basis ― overview guidance note.Foreign income and gains regimeIndividuals will not be taxed in the UK on their foreign income and gains for the first four tax years of UK residency, under