Should I Claim Remittance Basis?

At Taxd, we understand the complexities of tax filing for non-domiciled expats. In this post, we delve into the differences between Remittance and Arising basis and the tax implications of each. Especially useful for individuals with foreign income that they keep overseas, use this guide alongside the calculator above to make informed decisions.

March 2024 Spring Budget update: From April 2025, the non-domicile and remittance basis regime of taxation will end. Please see our summary here.

What is Remittance Basis

and what is arising basis

Remittance Basis:

This is a tax treatment option available in the UK to individuals who are resident but not domiciled (non-dom) in the UK. Under the remittance basis, you are taxed on your UK income and gains, and on any foreign income and gains that you bring into the UK.

Scenario: Maria is a non-domiciled UK resident originally from Canada. She has a job in the UK, earning £50,000 per year. Additionally, she receives £20,000 per year from investments in Canada.

Tax Treatment: Under the Remittance Basis, Maria only pays UK tax on her UK income (£50,000). She does not pay UK tax on her Canadian investment income unless she brings that money into the UK. If Maria keeps her Canadian income in Canada or uses it abroad, she won't owe UK tax on it.

Arising Basis:

In contrast, the arising basis of taxation means that you are taxed on your worldwide income and gains, regardless of whether they are brought into the UK or not. This is the default taxation method for UK residents.

Scenario: John is also a non-domiciled UK resident, but he's from Japan. He works in the UK, earning £50,000 annually, and has investments in Japan generating £20,000 each year.

Tax Treatment: On the Arising Basis, John pays UK tax on his total worldwide income. This means he is taxed on both his UK earnings (£50,000) and his Japanese investment income (£20,000), totalling £70,000, regardless of whether he brings his Japanese income into the UK or not.

What is Non Domicile (How do you work out your domicile?)

A non-domicile (non-dom) is an individual who lives in the UK but has a domicile outside of the UK. Your domicile is usually the country your father considered his permanent home when you were born. It can change if you move abroad and demonstrate a permanent intention to live elsewhere.

Determining domicile involves factors like the duration and purpose of residence, family and business ties, and intentions for the future.

Implications of claiming Remittance Basis

Claiming the Remittance Basis can have significant tax benefits for non-doms with substantial foreign income. However, it comes with implications such as losing personal allowances for income tax and capital gains tax. Additionally, the Remittance Basis charge applies after you've been a UK resident in at least 7 of the previous 9 tax years.

The £30k and £60k tax charges

For non-domiciled residents in the UK, a Remittance Basis Charge (RBC) applies. If you've been a UK resident for at least 7 out of the previous 9 tax years, the charge is £30,000. This increases to £60,000 if you've been a resident in at least 12 of the previous 14 tax years. These charges are in addition to any UK tax due on remitted income and gains.

FAQs

Get in touch with us if you have any other queries!

Should I claim remittance basis?

Deciding to claim the Remittance Basis depends on individual circumstances. It's beneficial if you have substantial foreign income and gains that you do not need to bring into the UK. However, the associated charges and loss of allowances need to be considered. It's advisable to consult with a tax professional to understand the full implications and make an informed decision.

Who can claim the Remittance Basis?

The Remittance Basis is available to individuals who are UK residents but not domiciled in the UK (non-doms). It's particularly relevant for those who have foreign income and gains they wish to keep outside the UK.

How does claiming the Remittance Basis affect my UK tax return?

When claiming the Remittance Basis, you report and pay tax on your UK income and gains as usual. However, you only need to report your foreign income and gains if you bring them into the UK. This might require additional sections to be completed on your tax return, and you should indicate that you're claiming the Remittance Basis.

Can I switch between Remittance Basis and Arising Basis?

Yes, individuals can choose from year to year whether to be taxed on the Remittance Basis or the Arising Basis. However, it's essential to consider the long-term implications, including the potential loss of personal allowances and the Remittance Basis Charge (RBC) after certain periods of UK residency.