Definition of Remittances in the UK

As we transition into a new tax regime for non-domiciled individuals, taxpayers who have previously benefitted from the remittance basis will still be subject to tax if they remit those funds to the UK. Understanding the intricate remittance rules remains key to navigating this change effectively.

Introduction

Remittance basis is a term used in the context of taxation in the United Kingdom. It refers to a method by which certain taxpayers, specifically those non-domiciled but resident in the UK, are taxed on their foreign income and gains only when brought into (remitted to) the UK.

What Are Remittances?

When you bring money or gains from outside the UK into the UK, they might be taxed. It’s important to know when these funds are considered “remitted.” The rules are pretty detailed and are designed to capture situations where the benefit of the offshore income or gains are ‘enjoyed in the UK’.  Generally, a remittance happens when:

• Money or property from foreign income or gains is brought into, received in, or used in the UK by you or someone close to you.
• You or someone close to you benefits from a service in the UK, and the payment for that service comes from your foreign income or gains, whether the payment is made offshore or within the UK.
• Foreign income or gains are used outside the UK to pay off a debt, benefiting someone in the UK.
• Foreign income or gains are used to pay off a debt related to property or services in the UK.

Who’s Considered a “Relevant Person”?

• You, your spouse or civil partner, your minor child or grandchild, or the minor child or grandchild of your spouse or civil partner.
• A close company, or one that would qualify as a close company if it were UK-resident, in which any relevant person is a participant.
• The trustees of a settlement where any relevant person is a beneficiary or a body associated with such a settlement.

Examples of a typical remittance

A remittance for tax purposes encompasses a wide range of transactions and is not limited to simply transferring money to the UK.  We have listed below some common examples, but this is by no means an exhaustive list:

• Using a non-UK credit card to purchase items in the UK and paying off the credit card with offshore income or gains.
• Payment to an overseas tour operator for travel where the journey begins or ends in the UK.
• Purchasing an asset overseas with foreign income and gains and importing that asset to the UK.
• Remitting the proceeds of a loan from an offshore bank, where the loan is secured against your foreign income and gains, is generally treated as a remittance of those offshore income or gains.
• Gifting an asset or cash to a relevant person (defined above) which they then bring to the UK.
• Purchasing shares in a UK company using foreign income or gains is generally a remittance even if the shares are held within a non-UK portfolio.
• A donation from an offshore account to a UK charity.
• Payment of an invoice to an overseas account of someone who has provided you with a service in the UK is generally considered to be a remittance.

Anti-Avoidance Measures

There are also rules to prevent the indirect or direct remittance or enjoyment of funds through gifts to non-relevant persons or by engaging in reciprocal arrangements to circumvent the rules.

The information in this publication provides a broad overview of the topics addressed. While we strive for accuracy, we cannot guarantee it will remain accurate in the future. It should not be considered exhaustive or relied upon for decision-making or as a substitute for professional advice. Ostberg Sinclair is not responsible for any consequences arising from actions taken or not taken based on this material. Please contact us if you would like to discuss your specific circumstances further.