• Home
  • >
  • Blogs
  • >
  • Remittance Basis of Taxation in the UK

Remittance Basis of Taxation in the UK

Published by UK Property Accountants
Published Date: May 7, 2024
Categories: Remittance Basis

Individuals can pay taxes on their overseas income and gains based on what they remit to the UK instead of paying taxes on worldwide income. That sounds great. Let's cover these in this article so that you can save money on taxes.

Arising Basis vs Remittance Basis

Under the Arising Basis, individuals must pay UK tax on their worldwide income and gains for the tax year, with taxation applied to all income and gains regardless of source. This method involves a straightforward approach to taxation, where global income and gains are subject to the UK tax for the specific tax year.

If you have a worldwide taxable income of £20,000 after deducting the personal allowance, you will pay a tax of £4,000, i.e. £20,000 * 20%.

The remittance basis introduces a different tax treatment, where individuals pay tax on income from UK sources and gains brought (remitted) to the UK.

Am I Eligible to Claim the Remittance Basis?

Am I eligible to claim the remittance basis?

Not everyone is eligible to claim the remittance basis; you need to meet certain conditions of eligibility criteria to claim the remittance basis. You can claim remittance basis if you fulfil the following conditions:

  • Foreign Domiciled (UK domiciled are not eligible to claim the remittance basis)
  • Tax Resident in the UK, and
  • Having Income originating from outside the UK

How to Claim the Remittance Basis?

If you meet the eligibility criteria and decide to claim remittance basis, you need to complete the 'Residence, Remittance Basis, etc.' pages from your Self-Assessment Tax Return. Make sure to tick Box 28 on Page 3 of the form. Download the Form for Tax Year 2022/23.

Remittances

It is necessary to understand what remittance is for UK tax purposes before using the remittance basis. Remittances for UK taxation are not just a simple transfer of funds in the UK, but these include the following:

  • Transferring foreign income from offshore banks to UK banks and bringing cash to the UK.
  • Giving foreign income to your spouse who brings them to the UK.
  • Paying off UK loans with overseas funds.
  • Bringing assets to the UK.
  • Using a credit card from a foreign bank in the UK.

Further information is given on the HMRC Manual RDRM33010.

Remittance Basis Tax Charge

One disadvantage of claiming the remittance basis is incurring a Remittance Basis Charge (RBC) in addition to UK tax that is due on any income or gain remitted to the UK. This charge can be £30,000 or £60,000 annually, depending upon the criteria.

  • £30,000 if UK resident for 7 of the last 9 tax years
  • £60,000 if a UK resident for 12 of the last 14 tax years

Even if your income and capital gain are large enough to benefit even after paying the remittance charge, it is necessary to note that the remittance basis cannot be used forever. If you become a UK resident for 15 out of 20 past tax years, you no longer can claim the remittance basis as you would be deemed UK domicile.

How to Avoid Remittance Basis Tax Charge?

How to Avoid Remittance Basis Tax Charge?

Although this might not be practically applicable, it is possible to avoid remittance-based tax charges. You can avoid paying the remittance basis tax charge by ensuring you are a non-UK resident for three out of the ten tax years.

Losing Personal Allowance and Exemptions

Although you are not required to pay taxes on an Arising Basis, you will lose various allowances and exemptions, the most important ones being the personal allowance for Income Tax and the annual exemption amount for CGT purposes.

You need to consider your tax position and plan accordingly. You might pay extra in taxes due to losing your personal allowance. Most individuals who benefit from remittance on the basis of taxation are additional rate taxpayers as they pay income tax at 45% and also cannot benefit from personal allowance.

However, you might qualify for personal allowance under a Dual Tax Agreement if you hold dual tax residence status. This means you will still be eligible for personal allowance even after claiming remittance based on taxation.

For example, 

Alisha, a higher-rate taxpayer, is eligible for remittance basis. She sells her overseas holiday home in 2023/24 and realises a capital gain of £200,000. If she pays tax on the arising basis, she will pay £54,320 in capital gains tax, calculated as (£200,000 - £6,000) * 28% = £54,320.

If she claims the remittance basis, her overseas capital gain tax will be tax-free, but she will lose her tax-free capital allowance of £6,000. This means her bill can increase by a maximum of £1,680 (if she has chargeable UK gains).

In the above example, claiming a remittance basis has saved tax, but there are traps to look out for. This is where our team of experts can help you.

Conclusion

Claiming remittance basis requires a detailed understanding of various tax implications you could face along the way. Although this article aims to provide insight into remittance basis tax, choosing an inappropriate decision could cause you to overpay taxes. This is where our firm of experts can guide you to make your journey smooth and save taxes along the way.

Need Expert Advice on Remittance Basis of Tax?

Contact us today for efficient and
hassle-free assistance.

UK Property Accountants
Our Complete Guides
Related Posts

Trust UK Property Accountants to Optimise Returns and Minimise Hassles!

Reach Out to Us Today and Let's Shape
Your Success Together!

Success message!
Warning message!
Error message!