Understanding the UK Remittance Basis

Overview

Individuals who are UK resident but not domiciled (see Understanding domicile for UK tax purposes) in the UK have the option to be taxed on either the arising basis or the remittance basis. The arising basis means that they are taxed on their worldwide income and gains, regardless of whether it is brought into the UK or not. The remittance basis allows individuals to only pay tax on income and gains that are brought into or used in the UK, rather than on their worldwide income and gains. This can be a beneficial tax planning tool for individuals with significant foreign income and gains.

Charge

In most cases the remittance basis must be claimed on a tax return. Individuals must also pay an annual charge called the Remittance Basis Charge (RBC) if they have been resident in the UK for at least seven out of the previous nine tax years. For those who have been resident for at least seven of the previous nine tax years the charge is £30,000 per tax year. For those who have been resident for at least 12 of the previous 14 tax years the charge is £60,000.

Consideration points

The remittance basis can be a useful tool for individuals with significant foreign income and gains as it allows them to defer tax on income and gains that are not brought into the UK. This can be particularly beneficial for individuals who have accumulated wealth outside of the UK and do not want to be taxed on it until it is remitted to the UK. It is also useful for individuals who do not intend to remain in the UK long term.

It is important to note that claiming the remittance basis may have some drawbacks. Firstly, individuals who claim the remittance basis lose their entitlement to certain UK tax allowances and reliefs. Secondly, there are complex rules and anti-avoidance measures in place to prevent individuals from artificially avoiding UK tax by manipulating their remittances.

Whilst the remittance basis is an attractive planning tool at a high-level, it doesn’t always economise an individual tax position. This is particularly the case for individuals whose unremitted income will be tax regardless of their UK position, i.e., US citizens. It is therefore important to analyse the remittance vs arising basis annually to ensure a claim makes sense. Claiming the remittance basis can also have a long-term UK tax impact on assets within accounts. It is imperative that taxpayers adequately plan for the remittance basis regime, and their future investment income, to mitigate adverse long-term implications for a short-term benefit.