Remittance Basis

Definition

The remittance basis is a method of taxation in the United Kingdom for individuals who are residents but not domiciled in the UK. Under this system, such individuals are taxed on their UK income and gains, as well as on their foreign income and gains, but only to the extent that these foreign earnings are brought into (remitted to) the UK. This basis applies automatically for the first six years of residency. After this period, individuals can elect to be taxed on the remittance basis by paying an additional fee of £30,000 for the tax year, as established by the Finance Act 2008.

Key Points:

Applicable to UK residents who are not domiciled in the UK.
Tax applies to foreign income and gains only if they are remitted to the UK.
Automatic for the first six years of residency.
£30,000 annual charge for the election in subsequent years.

Examples

Year 1–6 Residency: John, who is resident but not domiciled in the UK, earns £50,000 from a business in the US. Under the remittance basis, he is only taxed on this income if he remits it to the UK.
Purchasing Property Abroad: Sarah, who is not domiciled in the UK, buys a property in France and later sells it for a profit. She is only liable to UK Capital Gains Tax on this profit if she brings the proceeds back to the UK.
Non-Pecuniary Remittance: Mark, another non-dom, imports a car he purchased with his foreign income. This is not considered a remittance until he sells the car in the UK.
Electing Remittance Basis Post-6 Years: Lucy, who has been a UK resident for 7 years, earns investment income in Switzerland. To continue benefiting from the remittance basis, she elects to do so and pays the £30,000 annual charge.

Frequently Asked Questions

Q1: Can anyone use the remittance basis? A1: No, it is specifically for individuals who are resident in the UK but not domiciled there.

Q2: What if foreign income is never brought into the UK? A2: If foreign income is not remitted to the UK, it is not subject to UK tax under the remittance basis.

Q3: What is considered a remittance? A3: Generally, a remittance includes any funds or property moved to the UK from abroad. The import of goods is not considered a remittance until they are sold in the UK.

Q4: Is there an ongoing cost to elect for the remittance basis? A4: Yes, after the initial six years, residents need to pay an annual charge of £30,000 to use the remittance basis.

Q5: Do I need to elect for the remittance basis every year? A5: Yes, the election must be made annually, and the £30,000 fee must also be paid annually.

Resident: An individual who lives in the UK and meets the statutory residency test.
Non-Domiciled: A tax status in the UK indicating that, while living in the UK, an individual’s permanent home is overseas.
UK Income Tax: Taxes levied on income earned by UK residents and non-residents.
Capital Gains Tax (CGT): A tax on the profit realized on the sale of non-inventory assets.

Online References

Suggested Books for Further Studies

“Taxation of Non-Residents and Foreign Domiciliaries” by James Kessler: This book provides clarity on the intricate tax rules affecting non-domiciliaries.
“UK Taxation: A Simplified Guide for Students” by Mark Hunt: A significant resource for understanding the broader aspects of UK taxation, including the remittance basis.
“Principles of Corporate Taxation” by Peter Harris: An essential read for understanding corporate tax principles, indirectly benefiting understanding of personal residency and tax.

Accounting Basics: “Remittance Basis” Fundamentals Quiz

### Does the remittance basis apply automatically to all UK residents? - [ ] Yes, it applies to all residents. - [ ] Only if they pay a specific fee. - [x] No, it applies automatically only to those who are resident but not domiciled. - [ ] Yes, but only after six years. > **Explanation:** The remittance basis applies automatically only to individuals who are resident in the UK but not domiciled there during their first six years of residency. ### What is required for the remittance basis to continue applying after the initial six years? - [x] An annual fee payment - [ ] A permanent residency card - [ ] Declaring domicile in the UK - [ ] Meeting with HMRC annually > **Explanation:** After the first six years, the taxpayer must elect for the remittance basis annually and pay a fee of £30,000 each year to continue using it. ### Are goods imported from abroad considered a remittance immediately? - [ ] Yes, upon entry - [ ] Only if declared at customs - [x] No, not until they are sold - [ ] Only if their value is above £10,000 > **Explanation:** Goods bought abroad and brought to the UK do not count as a remittance until they are sold. ### Which of the following incomes are taxed under the remittance basis? - [ ] All global income automatically - [ ] Only UK-income regardless of remittance - [x] Foreign income brought into the UK - [ ] UK income only if declared > **Explanation:** Under the remittance basis, only the foreign income remitted to the UK is taxed. ### How long is the remittance basis automatically applied to non-domiciles living in the UK? - [ ] One year - [ ] Three years - [x] Six years - [ ] Ten years > **Explanation:** The remittance basis applies automatically for the first six years for non-domiciles. ### What type of tax applies to gains realized on the disposal of foreign assets? - [ ] UK Income Tax - [x] UK Capital Gains Tax - [ ] No UK Tax - [ ] Foreign Tax only > **Explanation:** Gains from the sale of foreign assets are subject to UK Capital Gains Tax if the proceeds are remitted to the UK. ### After how many years does the remittance basis require an annual charge to be paid? - [ ] 1 year - [ ] 3 years - [ ] 5 years - [x] 6 years > **Explanation:** After the initial six years of residency, a £30,000 annual charge is required to elect for the remittance basis. ### Who decides if a resident qualifies for the remittance basis? - [ ] The individual's tax advisor - [ ] The local council - [ ] The firm employing the individual - [x] HM Revenue & Customs (HMRC) > **Explanation:** HMRC sets and enforces the rules regarding eligibility for the remittance basis. ### In what year did the Finance Act introduce a fee for the remittance basis? - [ ] 2005 - [x] 2008 - [ ] 2012 - [ ] 2015 > **Explanation:** The Finance Act of 2008 introduced the £30,000 annual charge for electing the remittance basis after the initial six years. ### What is the standard annual fee for electing for the remittance basis post-six years? - [ ] £20,000 - [ ] £25,000 - [x] £30,000 - [ ] £50,000 > **Explanation:** The standard annual fee to elect for the remittance basis after six years is £30,000 per the Finance Act 2008.

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