Each tax year, non-doms who are long-term UK tax residents have to decide whether to pay the remittance basis charge (“RBC”) so that they can be assessed on the remittance basis of taxation in respect of their foreign income and foreign capital gains.

Being eligible to claim the remittance basis means an individual pays tax on UK income/gains as they arise; but are only liable for UK tax on non-UK income/gains when they are remitted to the UK.

However, there’s a significant cost attached to opting for the remittance basis. The remittance basis charge (RBC) amounts to:

• £30,000 for individuals resident in the UK for at least 7 of the past 9 tax years
• £60,000 for those resident for at least 12 of the past 14 tax years

The decision journey

A decision on whether to be assessed on the remittance basis must be taken before 31 January following the end of the tax year in question. But the earlier you make the decision, the more you can plan accordingly during the year.

The tax experts at KPMG have created a decision tree to help steer you through your remittance-basis decision journey.

It’s based on the tax rates applicable for the 2018/19 tax year, and makes the following assumptions: 

• the taxpayer has primarily either foreign income, or significant foreign capital gains
• foreign income will be taxed at 45%
• foreign gains will be taxed at 20%

It’s important to note that the diagram should be used only as a guide, and not as a substitute for professional advice.

The issues surrounding the remittance basis are complex, and there are several important points to be aware of:

• Husbands and wives must pay the RBC separately – though it may be possible to structure your investments so you don’t have to pay it every year.
• Income from offshore and UK trusts of which you are a settlor or beneficiary maybe included in your income.
• Income or gains from any offshore companies in which you invest may be included in your income and gains.
• If you receive a capital benefit from a trust, you may have to include trust income or gains in your personal tax calculations.

An informed choice

The RBC should in many (but not all) cases be included in your payment-on-account calculations – which will usually increase the tax due on account the following year. Specialist advice should be sought on whether to claim a reduction in payments on account, particularly if you’re unlikely to claim the remittance basis the following year.

If certain conditions are met, the RBC can be paid using untaxed foreign income or gains without triggering a taxable remittance. Again, advice should be taken on this matter, as a remittance may be triggered if there’s a subsequent tax refund.

Indeed, individuals considering the remittance basis should always consult an expert advisor beforehand.

The rules and implications are complex, and the charge is expensive. And for people with a combination of income and gains, or who are subject to lower tax rates than we’ve assumed, the landscape becomes even more complicated.

Ultimately, you’ll need an informed view of whether the remittance basis is going to save you money in any given tax year.

View KPMG’s remittance basis charge decision tree.

You can contact our advisors on: 

Paul Day
Director
Email: Paul.Day@kpmg.co.uk
T: +44 (0)20 7311 3560

Francesca Power
Senior Manager
Email: Francesca.Power@kpmg.co.uk
T: +44 (0)115 9353 545