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5. The remittance basis

5.1. What is the remittance basis?

If you are resident in the UK you will normally be taxed on the arising basis. This means that you are liable to pay UK tax on your worldwide income and gains, wherever they arise or accrue.

The remittance basis is an alternative tax treatment available to people who are resident in the UK and who are either:

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• not domiciled in the UK, or
• not ordinarily resident in the UK.

The remittance basis is relevant only if you have foreign income and/or gains. If you do not have foreign income and/or gains then the remittance basis is not relevant to you.

The guidance given on the remittance basis in this chapter describes how the remittance basis operates from 6 April 2008. It provides an overview of the remittance basis to help you if you have straightforward tax affairs. If your tax affairs are more complex, you should refer to our more detailed guidance on the remittance basis or get advice from a professional tax adviser.

5.1.1. What about small amounts of foreign income?

If you are employed in the UK but are not domiciled here and you only have small amounts of foreign income, you can benefit from an exemption. If you meet all of the following criteria for a tax year you will be automatically taxed on the arising basis for that year and you will not need to complete the Self Assessment tax return for your foreign income for that tax year.

In these circumstances you will not be liable to UK tax on your foreign income, either when it arises or when it is brought to the UK.

The criteria are shown below.

• You are resident in the UK.
• You are not domiciled in the UK.
• You are employed in the UK.
• You are a basic rate taxpayer (based on your worldwide income and gains).
• Your income from overseas employment for the tax year is less than £10,000.
• If you have overseas bank interest for the tax year it is less than £100.
• All your overseas employment income and interest is subject to foreign tax.
• You have no other overseas income or gains.
• You are not otherwise required to complete the Self Assessment tax return (see 5.5.1).

But if your circumstances are such that you would prefer to be taxed on the remittance basis, you will need to complete a Self Assessment tax return

5.2. How does the remittance basis work?

The remittance basis will affect your liability to UK tax on your foreign income and/or gains.

When you are eligible and choose to use the remittance basis, you will be liable to UK tax on all of your UK income and gains as they arise or accrue each year. But you will only be liable to UK tax on your foreign income and/or gains if and when you bring them (remit them) to the UK (see 5.9 for an introduction to what constitutes a remittance).

Even if you are eligible to use it, you do not have to use the remittance basis. You can use the arising basis and pay UK tax on your worldwide income and/or gains. The decision is yours to make and will depend on your own personal circumstances as using the remittance basis might mean that you pay more tax. Some of the things that you might want to think about when you make your decision are shown below.

• How much of your foreign income and/or gains you leave outside the UK (unremitted foreign income and/or gains).
• How long you have been resident in the UK.
• Whether or not you will be able to claim Double Taxation Relief.

The answer to these questions will help you to work out whether or not you have to make a claim to use the remittance basis by completing a Self Assessment tax return – see 5.6, what UK tax allowances and reliefs from Income Tax you are entitled to receive – see 5.5 and 6.5, whether you are entitled to the Annual Exempt Amount for Capital Gains Tax – see 12.4 and whether or not you might have to pay the Remittance Basis Charge (RBC) – see 5.7. If you decide to use the arising basis you will need to make a Self Assessment tax return giving information about your foreign income and/or gains.

5.3. Who can use the remittance basis?

To use the remittance basis you must have foreign income and/or gains during the tax year and be resident in the UK, and either:

• not domiciled in the UK (when you can use the remittance basis for both foreign income and/or gains), or
• not ordinarily resident in the UK (when you can use the remittance basis for foreign income, but cannot use it for foreign gains unless you are also not domiciled in the UK).

If you have used the remittance basis in earlier years and you bring any of those earlier years’ foreign income and/or gains to the UK at a later date, you may still be liable to UK tax upon this remittance.

5.4. What UK tax will you have to pay on the remittance basis?

This table lets you to compare liability to UK tax on both the arising and remittance bases, and provides an overview depending on individual circumstances. You can find more detailed information about the taxation of employment income, including foreign employment income, in part 10, particularly at 10.10.1.

5.5. What happens when you choose to use the remittance basis?

If you are employed in the UK, have only small amounts of foreign income and meet the rest of the criteria listed at 5.1.1, then you might prefer to be taxed on the arising basis.

What you have to do when you want to use the remittance basis will depend on how much unremitted foreign income and/or gains you actually have during the tax year.

5.5.1. Less than £2,000 unremitted foreign income and/or gains arising or accruing in the tax year

If your unremitted foreign income and/or gains arising or accruing in the tax year are less than £2,000 you can use the remittance basis without having to make a claim or complete a Self Assessment tax return (see 5.6). If this is the case then you:

• will be automatically taxed on the remittance basis (unless the rules at 5.1.1 apply instead)
• will not lose your entitlement to UK personal tax allowances or to the Annual Exempt Amount for Capital Gains Tax
• will not have to pay the Remittance Basis Charge.

In certain circumstances you might still have to complete a UK Self Assessment tax return to tell us about your UK income and gains and about any foreign income and/or gains which you have remitted to the UK during the tax year. See the Self Assessment guidance on our website if you think this may apply.

To work out whether your unremitted foreign income in a tax year is below £2,000, you should deduct the total foreign income you have remitted during the tax year from the total foreign income received, for each currency, during the tax year. The balance left is your unremitted foreign income. This should then be converted into pounds sterling at the rate of exchange prevailing on the last day of the tax year to calculate whether your unremitted foreign income is below the £2,000 limit.

This applies only for the purposes of deciding whether unremitted foreign income is below the £2,000 limit.

Foreign gains are always calculated in pounds sterling using the rates of exchange prevailing at the time when the gain is calculated and when allowable expenditure was incurred.

5.5.2. £2,000 or more unremitted foreign income and/or gains in the tax year

If your unremitted foreign income and/or gains arising or accruing in a tax year are £2,000 or more, you will have to make a claim if you want the remittance basis to apply to you otherwise you will be liable to UK tax on the arising basis.

If you do claim the remittance basis then, in most cases, in any tax year you claim, you will lose your entitlement to UK personal allowances and reliefs for Income Tax and to the Annual Exempt Amount for Capital Gains Tax. But you might not lose your entitlement to UK personal tax allowances and reliefs, if you are ‘dual resident’ – that is resident in the UK and also resident in certain other countries – see 6.5.

Depending on how long you have been resident in the UK, you might also have to pay the £30,000 RBC.

In some cases you may find that the loss of your personal allowances and Annual Exempt Amount and payment of the RBC where appropriate, would outweigh any savings in tax on your unremitted income or gains so you may prefer to be taxed on the arising basis. That decision is yours and we cannot give you advice on what you should do. You might want to get advice from a professional tax adviser.

5.6. How to make a claim for the remittance basis

If you decide to make a claim to be taxed on the remittance basis you must complete a Self Assessment tax return, including the SA109 Residence and remittance basis etc. supplementary pages.If you are not domiciled in the UK and are using the remittance basis for foreign gains, you might also need the SA108 Capital Gains supplementary pages.

The residence supplementary pages of the Self Assessment tax return contain questions covering the status conditions for making a claim for the remittance basis and lets you make a declaration which covers:

• residence status
• ordinary residence status
• domicile status
• making your claim for the remittance basis
• cases where the individual is under 18 years of age at 5 April
• nominations of foreign income and/or gains which are required for your claim to the remittance basis to be valid.

If you are using the remittance basis but have less than £2,000 unremitted foreign income and/or capital gains you will need to complete these pages if you are a Self Assessment taxpayer for any other reason.

Overseas losses election

If you are not domiciled in the UK and wish to offset any overseas losses (from the disposal of overseas assets) against your chargeable gains you must make an election to do so. Once an election has been made, foreign losses may be set against UK gains as well as against foreign gains, subject to special ordering rules.

You can only do this if you are resident but not domiciled in the UK and the election must be made for the first year for which you claim the remittance basis from 2008–09 onwards, whether or not you have chargeable gains or overseas losses in that year.

Once made, the election cannot be revoked. If you choose not to make an election your foreign losses for the year and for all future years (in which you remain not domiciled in the UK) will not be allowable losses.

For more information on foreign losses see the HMRC Capital Gains Tax Manual. Or consult a professional adviser.