Do I need to file tax return if income unremitted?

[pandora_boite]

I am a non-dom that moved to the UK 5 years ago. I live with my partner and have not worked in that time. I have some overseas funds (from before moving to the UK) that produce around 3000GBP interest/dividends and 4000GBP capital gains each year. In all the time that I have lived here, I have only remitted funds once - 5000GBP in 2007.

I have never received a tax return and never filed one because I thought I was below the threshold for owing tax. Someone recently told me however that I should have contacted the tax office to officially ask to be considered for remittance basis. They said that since I haven't done that, I should be filing tax returns.

I am now really worried. Is this true? If so, how should I move forward.

Thanks in advance.

[tax_schmax]

If you've been resident for less than seven years, you do not need to complete a tax return to claim the remittance basis. You may have a window of opportunity to tidy things up before it bites. Having said that, the tax should be relatively small if you opt for the arising basis to apply.

[maths]

I'm afraid tax_scmax is incorrect.

If in any tax year in which non-UK source income and/or capital gains arise then the arising basis applies unless a claim for remittance basis treatment is made for that tax year.

Where a claim is made neither the personal allowance or the annual exempt amount (re CGT) is available for the tax year in respect of which a claim is made.

Given the amounts involved it may be better not to claim remittance basis treatment as no UK tax charge arises on the £3,000 and £4,000 due to the personal allowance and annual exempt amount. In addition, again given the amounts, there appears to be no need to inform HMRC or complete a tax return.

[pandora_boite]

Thank you both for taking the time to reply.

Just some questions to ensure that I have properly understood your answers:

Tax_schmax you say I have "a window of opportunity to tidy things up". I do not understand what you mean. What do I have to tidy up? What happens after the seven years is up?

Maths, if I understand you correctly you are saying that my assumption that I do not have to submit a tax return if no funds have been remitted is wrong. According to you, each year I have to add up my income and gains and compare it to the allowances for that tax year. If I have earned below that limit then I don't have to do anything. If however I earn above the allowed limits then I have to submit a tax return. In that tax return I either pay tax on the earnings or make a claim for the remittance basis to apply. Basically, I can't be passive about this, I have to keep track of my earnings in order to work out what action has to be taken in each tax year. Is this correct?

Thanks in advance.

[tax_schmax]

Thanks Maths.

I was under the impression that until you're long term resident, i.e. resident for 7 out of the last 9 tax years, you were automatically on the remittance basis. I'll dig out HMRC 6 again.

The point I was making about 7 years was that if you structure your offshore affairs prior to being deemed a long term resident, you can use certain types of investment to defer taxes until such time that you are non resident once more, if that is your intention. Maths point about the small amount of income and gains is well made. However, my experience suggests that often, the principle that causes the income or gains can be substantial. It is the currently interest rate and equity market performance that has pushed the returns lower. If this direction reverses, the low income and gains may be a thing of the past.

[maths]

Correct.

[pandora_boite]

Thanks for the replies. Just one last question related to this. Does the fact that by default I am taxed on the arising tax basis mean that I can bring the funds into the UK without any tax being due, because my tax free allowances over the last five years covers any gains that are taxable?

Do I need to make any declarations about the funds being remitted, or just keep my bank statements in order to prove that the earnings over the last 5 years were below the allowances threshold?

[maths]

Does the fact that by default I am taxed on the arising tax basis mean that I can bring the funds into the UK without any tax being due, because my tax free allowances over the last five years covers any gains that are taxable?

Correct.

Do I need to make any declarations about the funds being remitted, or just keep my bank statements in order to prove that the earnings over the last 5 years were below the allowances threshold?

No declaration necessary.

At some point, either HMRC will send you a Tax Return for completion or it will be necessary for you to file one either to claim non-dom status or because your income/gains exceed the relevant allowances.It may then be necessary to be able to prove what has been remitted and/or the amount of foreign income/gains for a tax year which arose. Critical that all your bank statements are kept.

[pandora_boite]

Thanks very much for the advice Maths it is much appreciated.

I got back to the person who had told me I needed to file a tax return to ask where he got his ideas from. He said that the HMRC website states that if you have more than 2000pounds of unremitted foreign earnings in a year then you need to file and declare it.

Why would this not apply to me?

[maths]

I got back to the person who had told me I needed to file a tax return to ask where he got his ideas from. He said that the HMRC website states that if you have more than 2000pounds of unremitted foreign earnings in a year then you need to file and declare it.

Why would this not apply to me?

The £2,000 figure relates to those non-domiciled individuals who are automatically taxed on the remittance basis where their aggregate unremitted income/gains fall below £2,000. If, however, the individual wants to be taxed on the arising basis then a tax return needs to be lodged to this effect.

Perhaps you can give me the exact HMRC reference to which your colleague refers?