Remittances

The Remittance Basis

As a general rule persons not domiciled in the United Kingdom, but who are resident and/or ordinarily resident here, are not taxed on their overseas income or gains to the extent that they are not transferred to the United Kingdom. Where there are transfers to United Kingdom in whatever form, these are deemed to be remittances and are likely to be taxable within the United Kingdom. A deduction or credit against UK tax is frequently available for some or all of the overseas tax that may have been payable on the income or gains in the country of origin. This may be dependent on the contents of a double taxation agreement between the United Kingdom and the relevant country.

The basis of taxing transfers to the United Kingdom is known as the "remittance basis" and can be extremely beneficial to non-domiciled persons who do not wish to pay UK tax on income or gains from overseas not remitted to the UK, even though they may be resident here. They can, with careful planning, be selective about what gains or income are transferred to the United Kingdom potentially opting for those where double tax relief would be available. It is frequently possible for such persons to identify capital sums overseas that have not arisen as a result of a capital gain or from income in which case, such remittances may not attract tax.

Constructive Remittances

Persons who are not domiciled in the United Kingdom but are resident or ordinarily resident may appreciate that transfers of overseas income to a United Kingdom bank account would be remittances and may thus be taxable. What is often not clearly understood are "constructive remittances", which are less obvious forms of remittances to the United Kingdom that may still be taxable and must be declared. For example, the use of a credit card within the UK, which is settled from a bank account outside the UK would be regarded as a constructive remittance. Contrast this with bringing a car from abroad to the UK, which would not normally be regarded as a remittance.

Overseas Pensions

A person will normally only be taxed on 90% of his/her overseas pension arising in the preceding year of assessment (April 6th-April 5th), where all the pension is brought to the UK. This concession is not available to a person who is using the Remittance Basis and as such tax will only be due on pension payments remitted to the UK.

Basis Of Taxation

The basis of taxation is that remittances for a person who is not domiciled in the UK but is either resident or ordinarily resident, will be taxable in the year to the 5th April in which they are received in the United Kingdom. For 1997/98 onwards any tax due for first year of remittances will be payable on the 31st January following the year to the 5th April in which the remittances were made. If remittances are to continue, the individual will be required to pay on account estimates of tax of 50% on 31st January in the relevant year to 5th April and 50% on the 31st July following the relevant year. The estimate is based on the previous years tax payable. No payment on account is required if the tax payable is less than £500 as the whole sum would be collected the following January 31st. Any relevant individual who may have remittances to declare, should request a Self Assessment Tax Return from the Inland Revenue. On this form they will be able to identify any double tax relief they may wish to claim.

Where only part of an individual's income is remitted, then it is normal practice that a similar proportion of the relevant tax is offset against that income. However, individuals should seek advice in their home country where they leave un-remitted income. Frequently double taxation conventions restrict exemption in their own country to such income as in fact is remitted to the United Kingdom and subject to tax here. The double taxation convention with any country needs to be considered carefully prior to relying on the remittance basis

The areas of taxation referred to in these section are complex, and advise should always be sought in writing, before relying on any specific provisions. Please use the response form by clicking on the link "Contact Us" below, or for further advice contact one of the Partners on +44 1273 202071.