The remittance basis can apply to the foreign income and gains of those who are UK resident but non-UK domiciled. For those who are UK resident and UK domiciled but non-UK ordinarily resident, the remittance basis can apply only to foreign income but not capital gains. To qualify for the remittance basis on capital gains, you would need to be UK resident or ordinarily resident but not UK domiciled.
In what follows, the expression “non-domiciliaries” means those who are UK resident but either non-UK domiciled and/or non-UK ordinarily resident.
From April 6, 2008, those who were taxable on the remittance basis before April 6, 2008 will be taxed on the arising basis unless they make a claim via a self-assessment return for the remittance basis to apply or have unremitted foreign income and/or gains in a tax year of less than £2,000 or are under the age of 18, when the remittance basis will automatically apply.
The consequences of making a claim differ depending on whether an individual is longterm UK resident or short-term UK resident.
Long-term UK residentsMost attention has been focused on this category of resident. From April 6, 2008, nondomiciliaries who are UK resident in the current tax year and who have been UK resident in at least seven out of the nine tax years (continuous or broken) preceding the current tax year will be taxed on the arising basis unless they claim otherwise and pay a £30,000 remittance basis charge for that tax year.
It will be possible to choose on a year by year basis whether to pay the £30,000 annual charge and keep the remittance basis or continue on the normal basis of taxation, paying tax on foreign income and gains when they arise.
Some tax allowances and reliefs are lost for any tax year for which the remittance basis is claimed by payment of the annual £30,000 charge. These are:
Short-term UK residents
These are those people who do not satisfy the years of residence test as set out above. Such people need to claim the remittance basis as otherwise they will be taxed automatically on the arising basis. For the remittance basis to apply, they will not incur an annual £30,000 charge but a claim will lead to the loss of the tax allowances and reliefs already set out.
Assuming that an individual is eligible to pay the charge by virtue of long-term residence and that his or her foreign income and gains exceed £2,000 in the tax year, does this mean that to access the remittance basis, the £30,000 must be paid? The answer is yes.
No payment of the £30,000 charge for a year (and the payment or not is decided each year) will mean that all income and gains arising in that year, wherever they are in the world, will be assessed on the UK-resident non-domiciliary. Of course, where appropriate, the range of double tax treaties that the UK has can be accessed to prevent the double taxation of income and/or gains.
In determining whether it is worth paying the £30,000 charge, it will be necessary to consider what the charge will be paid in respect of. If it is paid in respect of income that would otherwise be assessed at 40 per cent on the arising basis, then it will be necessary to have income of at least £75,000 to make it worthwhile paying the £30,000 charge.
Of course, tax at 40 per cent on income of £75,000 will amount of £30,000, so if income exceeds this, then there will be a benefit in paying the flat charge of £30,000.
In respect of capital gains, with a flat rate of 18 per cent since April 6 this year, it will be necessary to have taxable capital gains of £166,667 to make the payment of the charge worthwhile. Each case needs to be considered on its own facts, obviously, as individuals are quite likely to have a mixture of gains and income.
Another change that was made in the Finance Bill was one that results in the flat £30,000 charge being treated as a payment of tax. Broadly speaking, the taxpayer can choose to link this payment to specific foreign income and/or gains. The amount of such income or gains can then be remitted to the UK at some point in the future without further payment of tax on the remittance basis.
Categorising the payment as a payment of tax is also likely to be helpful in securing offset against any tax liability in the country in which the income or gains arise and/or because of the recipient’s liability due to, say, citizenship or tax residence in another country such as the US.
Another important consideration resulting from the categorisation of the £30,000 charge as a tax payment is the impact of double tax treaties that could remove any UK liability on foreign-sourced income and gains.