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How to use the Remittance Basis of Taxation from 6 April 2008

As a result of the UK Finance Act 2008, the way we tax the foreign income of people who are resident in the UK but are not ordinarily resident and/or not domiciled here is changing. These changes have effect from 6 April 2008. Later in this guidance you will find some information to help you understand what we mean by the terms ‘resident’, ‘not ordinarily resident’, ‘domicile’ and ‘personal allowances’, as well as other information such as ‘what is a UK Tax Year’.

The UK operates a Self Assessment tax system which means that people have to tell us about their income and tax liabilities and also have to claim any personal allowances. This must be done by 31 October following the end of a tax year for those people completing a paper return and by 31 January following the end of a tax year for those people completing a return online. If you are not within the Self Assessment system and you think you need to be, you should contact your local HM Revenue & Customs (HMRC) office and ask for a Self Assessment return to be sent to you.

People, who are resident in the UK, but who are not ordinarily resident and/or not domiciled here, are entitled to claim the Remittance Basis of taxation. This means that, while they are taxed like other UK residents on their income and gains arising in the UK, they are also taxed on any income or gains they ‘remit’ to this country (bring into the UK from overseas). They are not taxed on their foreign income and gains which remain outside the UK. (A ‘gain’ is when something you own is sold for a profit.)

The changes will mean that some people who use the Remittance Basis from 6 April 2008 will:

People with less than £2,000 unremitted foreign income or gains in a tax year, will not be affected by these changes. They will still be able to use the remittance basis and will keep their entitlement to UK personal tax allowances. They will not need to pay the RBC.

Less than £2,000 unremitted foreign income and/or gains in a tax year

People using the remittance basis who have less than £2,000 unremitted foreign income and/or gains will not have to pay the RBC and will keep their entitlement to UK personal tax allowances and to the Annual Exempt Amount (AEA) for Capital Gains. ('Unremitted' means not brought to the UK in any way.) They will still have to pay UK tax on any foreign income and/or gains which they remit to the UK and may need to complete a UK Self Assessment return to tell us about any income or gains they bring to the UK from abroad.

£2,000 or more unremitted foreign income and/or gains in a tax year

People with £2,000 or more in unremitted foreign income and gains, who wish to use the remittance basis, must make a claim for this on a Self Assessment return. People who are over 18 years old in the tax year they make the claim but who have not been resident in the UK for at least seven of the last nine tax years, do not need to pay the £30,000 RBC. They will still have to pay UK tax on any income or gains they ‘remit’ to the UK and they will lose their entitlement to UK personal tax allowances and to the AEA for Capital Gains.

People claiming the remittance basis who have £2,000 or more in unremitted foreign income and/or gains and have been resident in the UK for at least seven of the previous nine tax years, will have to pay the RBC. But the RBC will not apply to people who are under 18 years of age at the end of the year in which they claim the remittance basis.

People entitled to the remittance basis may choose not to claim it. They will then be taxed in the same way as other UK Residents (on the Arising Basis). Tax will become due on worldwide income and gains for that tax year. But the RBC will not apply and they will be entitled to UK personal tax allowances and to the AEA for Capital Gains. They will need to complete a UK Self Assessment return if they have any foreign income or gains for that year.

People entitled to claim the remittance basis are able to decide on a year by year basis whether they want to do so. In one year, a person might opt to pay the RBC and lose their allowances, while in the next year they might choose to pay tax on all of their worldwide income and gains.

This flow chart (PDF 20K) will help you decide whether or not you need to pay the RBC.

Background and explanation of the terms we use

The following is simple guidance designed to help you understand the terms discussed here. More detailed information can be found in our online booklet IR20 and other guidance.

Tax allowances and reliefs

UK personal tax allowances are amounts you can earn during a tax year before paying tax. These include the basic personal allowance; age related allowances, blind person’s allowance, tax reductions for married couples and civil partners and relief for life assurance premiums. The AEA is an allowance which you set against any capital gains you make during a tax year when disposing of assets.

Residence in the UK

People who are resident in the UK normally pay tax on their income and on their gains accruing on the disposal of assets which arise in the UK and anywhere else in the world. The position is different for those people who are resident in the UK but are not ordinarily resident and/or not domiciled here.

UK residence will depend on a person’s individual circumstances. We consider a person to be resident in the UK if they are here for 183 days or more in the tax year. A UK tax year is the 12 months starting on 6 April and ending 5 April the following year. Even if a person is here less than 183 days they might still be considered resident in the UK. An example would be someone who comes to live in the UK part way through a tax year. Another example could be someone who has been living in the UK but leaves to take an extended holiday. They will still be resident if they have not left the UK permanently or indefinitely.

When calculating the number of days spent in the UK, a person must count the total number of days they spend in the UK during a tax year, regardless of the number of trips they make in and out of the UK during that period. From 6 April 2008, a day spent in the UK is any calendar day ending at midnight, when an individual is physically present in the UK. There are some exceptions for people who can prove that they were only in the UK as part of their onward journey from one non-UK country to another and we do not normally count any days which are spent in the UK for exceptional circumstances beyond a persons’ control. ‘Exceptional circumstances’ would include the illness of a person.

Remittance Basis

In the past, people who were resident in the UK but were also either not ordinarily resident and/or non domicile here, were taxed on their UK income and gains but not on their overseas income or gains unless they were remitted to the UK. By this we mean paid to or brought to the UK in any way. This is called the remittance basis of taxation. Provided people left their overseas income abroad they were not taxed upon it. If people remitted any of their overseas income or gains to the UK, they paid tax on what was brought here. This was the situation before 5 April 2008 and this is changing from 6 April 2008.

Not ordinarily resident

It is possible to be resident in the UK but also, at the same time, be not ordinarily resident. We regard people as being ordinarily resident if they come to the UK regularly and their visits average 91 days or more a tax year. The date from which we regard people as being ordinarily resident will depend on their intentions.

Follow this link for more detailed information in our online guidance (IR20).

Domicile

Domicile is a concept of general law and might be different from a person’s residence or nationality. A person can be resident in the UK but have a domicile in another country. A country of domicile is usually acquired at birth and could be:

  • the country a person considers their permanent home
  • the country which a person’s father considered to be his ‘home country’ at the time of their birth or if their parents were not married, their mother’s ‘home country’
  • for women married before 1974 acquired from their husband when they married

Follow this link for more detailed information in our online guidance (IR20).