How the remittance basis works for non doms
Introduction
The UK tax system can be incredibly complex to navigate, especially if you expect to receive foreign incomes and gains while living in the UK.
As a starting point, your foreign incomes and gains are taxable in the UK however, providing that you hold non dom status, you have the option to exclude foreign incomes and gains from UK taxation using the remittance basis. This is with the caveat that the foreign incomes and gains arising in a tax year during which the remittance basis is used, are kept offshore forever.
As such, you must be sure that you will not require the funds in the present or in the future as if the funds are brought to or enjoyed in the UK, the funds will be subject to UK taxation and thus, the benefits of the remittance basis are removed.
Should you wish to utilise the remittance basis, it is imperative that you structure your bank accounts to clearly identify funds arising in a year that the remittance basis is used versus funds arising in a year that worldwide income is declared versus pre-arrival funds.
How does the remittance basis work?
Taxpayers using the remittance will pay tax on UK incomes and gains plus any foreign incomes and gains that are remitted to the UK.
What are the benefits of using the remittance basis?
1. Foreign incomes and gains will not be subject to UK taxation
1. Foreign incomes and gains must be kept offshore forever
Your cash flow will be impacted as you will not be able to bring the foreign funds to the UK.
2. Opt in and out
You are able to switch between the remittance basis and arising basis annually and therefore, should you wish to use the remittance basis for a particular tax year, you will not be ‘locked in’ and required to use the remittance basis forever.
3. Free to use for 7 years
3. Free to use for 7 years
You can use the remittance basis for free during your first 7 years of UK residence.
4. Privacy
You will not be required to disclose details of your foreign incomes, gains and ultimately wealth to HMRC.
What are the drawbacks of using the remittance basis?
1. Foreign incomes and gains must be kept offshore forever
Your cash flow will be impacted as you will not be able to bring the foreign funds to the UK.
2. You lose entitlement to tax free allowances
The personal allowance which is the first £12,570 of income taxed at 0% is lost. The annual exempt amount which is the first £3,000 of gain exempt is lost. *note that if your foreign incomes and gains are less than £2,000 you may be eligible to retain those allowances.
3. You must pay to access the remittance basis from your 8th tax year of residence
3. You must pay to access the remittance basis from your 8th tax year of residence
You will need to pay £30,000 from your 8th year of UK residence and £60,000 from your 13th year of UK residence.
4. You must file a UK tax return
You must file a UK tax return to claim non-dom status to use the remittance basis which will likely require you to work with a tax advisor or accountant. *note that if your foreign incomes and gains are less than £2,000 a UK tax return may not be required.
How can GTC help?
GTC can assess whether it is beneficial for you to use the remittance basis and in doing so, provide advice to ensure that you structure your affairs correctly, to obtain and retain the tax efficient benefits from using the special tax regime.
Become a GTC client
Book a free discovery call with our team. We will collect background information to develop a greater understanding of the necessary steps to take to optimise your UK tax affairs.