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| The Remittance Basis of Income Tax for Non-Domiciled Individuals |
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TaxationWeb by Laura Hutchinson ATII ATT The government are considering amending the rules applicable to individuals who are not domiciled in the UK. Tax specialist Laura Hutchinson ATII ATT of Tax Advisers Forbes Dawson explains the basics behind the current income tax regime for non-UK domiciliaries who are resident in the UK. The government are considering amending the rules applicable to non-UKdomiciled individuals. The following article attempts to explain the basics behind the current income tax regime for non-UK domiciliaries who are resident in the UK. UK Income Tax - Who is Assessable?To be taxable to UK income tax the individual must be UK resident or ordinarily resident, or the income must be UK source (ie arise in the UK). To be assessable on the arising basis the UK resident must also be UK domiciled, otherwise the individual is taxable on a remittance basis only (and on UK source income as it arises). How Income is AssessedThe individual is taxable to foreign income under Schedule D IV & V. This income, if remitted, does not fall under the legislation allowing savings income to be taxable at lower rates. The income forms the highest part of the individual's income and is assessable at the basic and higher rates only. No deduction is allowed such as trustees' fees against the income and the full amount is assessable. The UK resident individual is entitled to the usual reliefs such as annual exemption and the 10% band on the first portion of income. Non-UK domiciliaries becoming resident in the UK after 6 April 1997If an individual arrives the UK part way through the tax-year and becomes resident at that time, the amount on which he is taxed on the remittance basis can be reduced to the proportion that would have been chargeable on the arising basis. Example 1Mr X arrives in the UK on 6 October 2002.He has overseas investment income of: £200 on 7 Apr 2002 £500 in June 2002 £100 in Aug 2002 £250 in Nov 2002 £350 in Feb 2003 £300 on 2 Apr 2003 Total for tax year 2002/03 = £1,700 If he remitted £1,000 this would strictly be the amount chargeable. However this is compared to the amount he would have been taxable on the arising basis (had he not been non-domiciled). This would have amounted to 6/12 x 1,700 = £850. In practice the IR may reduce the amount chargeable on the remittance basis to £850. If a source of income ceases before the individual becomes UK resident no liability will arise. Types of RemittanceA remittance is not restricted to simply a physical transfer of money into the UK but can arise in cases such as: 1. Utilisation of income funds offshore to repay a loan or overdraft in the UK. 2. Repayment of a debt to a UK resident individual (ie not actually 3. A cheque from the offshore bank account encashed in the UK when 4. A gift of cash abroad may also be treated as remitted income if 5. Payments of debts on a UK credit card even if made direct to the 6. Using an offshore credit card in the UK where the debt is 7. If an offshore credit card is used as above but instead of being Mixed FundsIf the income arises in a mixed fund ie a bank account of capital and income, any cash remitted will be treated as income up to the level of income that has arisen in that account, there is no apportionment. If the bank account is mixed with income taxable on the arising basis (UK source) and that on the remittance basis, any income remitted will be primarily be treated as the income assessable on the arising basis. This income will have already been taxed and this reduces the income assessable in that year. On the separate matter of capital gains remittance a different rule applies. Any capital sums remitted that contain an element of proceeds of sale will include a due proportion of the capital gain arising on that disposal. It will not treat the whole gain as arising, only the relevant proportion to the disposal proceeds remitted. Income not Assessable1. The source of income has ceased before the year in which the remittance is made. 2. Remittances are made which do not relate to income arising in a Simple Tax Planning to Reduce Income Tax PayableIncome tax can only be charged on remitted income if the source on which * A transfer into discretionary trust * A transfer into certain types of interest in possession trusts
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About The Author  Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence. Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms. He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website. |
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Article Added Wednesday, 01 May 2002 | 23397 Hits |
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