Remittance and Arising tax guide
Tax can be tricky. Read our complete tax guide to answer your queries about how foreign income and gains are taxed in the UK.
What is remittance basis and arising basis?
If you live in the UK, but the UK is not your domicile, there are two forms of taxation on any income or gains earned outside the UK. These are called the Remittance Basis and the Arising Basis.
UK remittance basis
If the UK is not your domicile and you have income or gains from overseas but do not bring them to the UK, these are referred to as unremitted income and gains. If you do bring any income or gains into the UK, they are referred to as remitted income and gains. You can arrange to be taxed in the UK on only your remitted income and gains. This is called the Remittance Basis of tax.
Can I pay tax on the remittance basis?
If the UK is your domicile, yet you are not ordinarily resident here, you will not be able to use the Remittance Basis of tax for capital gains, but you may use this for income.
There are rules applying to when the Remittance Basis of tax can be used. Usually, this can be used when money earned abroad, which remains unremitted, is less than £2,000 by the end of the tax year. In this case, the Remittance Basis is usually applied without the need for an application. Only that income which is sent to the UK will be taxable by the UK.
If unremitted money earned abroad is over £2,000, the Remittance Basis may be used.
A ‘Remittance Basis Charge’ of £30,000 will have to be paid by those people who have been a UK resident for 7 or more of the previous 9 tax years. This is in order to ensure those who earn a large amount and live in the UK for a long time are not able to avoid tax payments.
A Remittance Basis Charge of £50,000 will have to be paid by those who have been UK resident for 12, or more, of the previous 14 tax years. This policy has been actioned since the 2012/13 tax year. The person will no longer be eligible for capital gains tax exemption, or UK tax free personal allowances.
Should I pay tax on the remittance basis?
It is wise to seek advice when choosing to apply for the Remittance Basis of tax. Whether or not you would benefit from the Remittance Basis, depends on whether or not your foreign income has been taxed abroad. This is because the UK usually applies a credit when income has already been taxed; meaning the UK tax on such income is reduced.
The costs of ensuring any income or commodities earned before you move to the UK are distinguished from those that are earned following your move. As this process is often complicated, these costs may be high.
If you plan to bring income to the UK in the future this will be taxed on Remittance, if it is not taxed on the Arising Basis currently.
Arising Basis
The method of tax for those who are domiciled in the UK, UK resident or ordinarily resident is called the Arising Basis. The Arising Basis of tax is where income and gains are taxed in the UK as and when they are earned.
The following two conditions show how earnings from outside of the UK are identified as ‘UK sourced’ for the purposes of tax:
Unless you are not ordinarily resident in the UK, if you are employed within a company whereby some work takes place outside the UK, you will be taxed on the Arising Basis if any work takes place within the UK.
Even if you are self employed and your business trades outside of the UK, those earnings made outside of the UK will be taxed on the Arising Basis if you trade within the UK at all.
For those people who are a non UK ordinary resident or a non-UK domiciliary who chooses not to be taxed on the Remittance Basis, the Arising Basis will be used for tax on their income and gains from abroad.
