Guidance for Foreign Domiciliaries - Remittance Basis Regime from 2008/09
Historically, one of the most significant tax advantages enjoyed by non-domiciliaries has been the remittance basis whereby income and gains generated and retained offshore escape UK taxation. This has not been abolished by recent legislation but, from 6 April 2008, it is only available to "long-term" UK residents at a price.
Arising Basis
Unless you are claiming to use the remittance basis, you will be taxed in the UK on all your income and gains on the arising basis. This means that you must pay UK tax on all of your worldwide income and gains in the year when the income and/or gains arise.
Remittance Basis Claim
As before, you can claim to be taxed on the remittance basis on your foreign income and gains if you are resident but not domiciled in the UK. This means that you will be liable to UK tax on your foreign income and gains only when these are remitted, that is brought to, or received or used in the UK in any way. The definition of what constitutes a remittance is widely drawn and applies if there is any benefit in the UK from use of foreign income or gains, including transactions undertaken by family members.
Legislation contained in the Finance Act 2008 also restricts the availability of allowances and introduces an annual tax charge for foreign domiciliaries who elect for the remittance basis to apply.
Loss of Allowances
If you claim the remittance basis of taxation for 2008/09, you will lose your entitlement to UK personal allowances and the annual exempt amount for capital gains. The only exception to this is if you have foreign income and/or gains arising in 2008/09 and of this 2008/09 foreign income/gains, less than £2,000 remains unremitted to the UK at 5 April 2009.
Remittance Basis Charge
In addition, if you claim the remittance basis for 2008/09 and you have been resident in the UK for seven or more of the previous nine tax years (that is, at least seven out of the tax years between 1999/00 to 2007/08) you may have to pay the remittance basis charge (RBC). The RBC is an annual tax charge of £30,000 in respect of nominated foreign income and gains left outside the UK. It is chargeable in addition to any UK tax due on any foreign income or gains remitted to the UK.
If you are a "long-term" UK resident the only exceptions where you do not have to pay the RBC are if:
- you have foreign income and/or gains arising in 2008/09 and of the 2008/09 foreign income/gains, less than £2,000 remains unremitted to the UK at 5 April 2009, or
- you were under 18 at 5 April 2009.
If you pay the RBC from outside the UK with untaxed income or gains it will not be treated as a remittance in the year, provided the payment is made direct to the Revenue by cheque or electronic payment of funds. However, if the £30,000 is later repaid to you, it will be regarded as a remittance when the repayment is made and will be subject to UK tax.
Nominating Foreign Income and Gains
To ensure that the £30,000 RBC is available as a foreign tax credit under double tax treaties, a nomination mechanism has been introduced. This has the effect of making those nominated income or gains taxable on an arising basis. However, the legislation states that you can only remit these sources of nominated foreign income and gains tax-free once you have no other unremitted capital, income or gains sources to remit.
Failure to ring-fence nominated funds and keep them outside the UK, will trigger punitive legislation resulting in all of your non-UK income and gains being treated as a single mixed fund, with amounts taxable at the highest rates deemed to be remitted first.
If you intend to elect for the remittance basis to apply for 2008/09 and subsequent years, you should establish an account(s) into which nominated income and gains can be segregated and not remitted to the UK, assuming you want to maintain the tax advantages of your domicile status for the future.
Temporary Non-Residents and the Remittance Basis
A nasty twist included in the non-domicile rules govern temporary non-residence. If you return to the UK following a period of residence abroad and resume residence within five fiscal years, any remittance to the UK in the period of absence consisting of or derived from relevant foreign income which arose in the prior tax years during which you were UK resident may be taxable in the year of your return. This rule applies where you have been resident in four out of the seven years prior to the year of departure. Careful record keeping is paramount.
For further information on the new remittance basis regime, please call Charles Green / Robert John on 020 8652 2450 or email
For further information on the new remittance basis regime, please call Charles Green / Robert John on 020 8652 2450 or email
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