The 31st January is the final deadline to submit your UK tax return for tax year.
The tax period for 2023 started on the 6th April 2023 and ends on the 5th April 2024.
The 2024 tax period will start shortly. Therefore, it is important to revisit some aspects of UK tax rules. Remittance basis of taxation is one of them.
Key UK Tax Terminology
What is Remittance Basis of Taxation?
All UK residents are taxed on the arising basis of taxation. Arising basis of taxation means that once you are a UK resident and domiciled you are taxed on your global income worldwide as it arises.
Remittance basis of taxation is the exception to this rule. It means that you are only taxed on what you remit back to the UK. Only individuals who are resident, but not domiciled in the UK are able to choose to be taxed on remittance basis.
What is a Domicile?
Domicile is a term used in international private law to indicate where someone ultimately belongs and calls a destination their ultimate home.
There are 3 types of domicile in English law:
- Domicile of origin;
- Domicile of dependence;
- Domicile of choice.
Here you may learn more about each of these terms. Most tax professionals will tell you that HMRC hijacked a fairly neutral legal term to apply for UK tax purposes.
What is a Deemed Domicile?
Deemed domicile is the term introduced by UK tax authorities to make long-term residents in the UK deemed domiciled for UK tax purposes.
At the moment, the rule is that once you have been resident in the UK for 15 out of the last 20 years, you are deemed to be domiciled for UK tax purposes in the UK.
HMRC felt it was important to treat long-term residents in the UK in the same fashion as UK domiciled individuals.
How long can you claim the remittance basis of taxation?
Similarly, you may only claim remittance basis of taxation when you are resident in the UK for 15 of the last 20 years.
For the first 6 tax years of residence in the UK it is possible to claim remittance basis of taxation without incurring any additional charges. Save for annual personal tax allowance.
Once you are resident in the UK for:
- 7 out of the previous 9 tax years, you will incur a remittance basis charge of £30,000;
- 12 out of the previous 14 tax years, you will incur a remittance basis charge of £60,000.
Remittance basis charge allows you to continue to claim remittance basis of taxation on your worldwide income and not to be assessed by UK tax authorities on arising basis of taxation.
Annual personal tax allowance is an annual amount of your income, which is not charged to tax. Current annual personal tax allowance for tax year 2023-2024 is £12, 570.
The 7 Tips for UK Remittance Basis Taxpayer
1. Seek Professional UK Tax Advice before you Relocate or Start Spending More Time in the UK
The UK is a sophisticated international tax jurisdiction and the earlier you start planning your relocation to the UK, the better.
Indeed one of the most popular services over the years has been the request to assess whether one becomes involuntarily a tax resident in the UK by virtue of spending more time in the UK. Remember that more frequent travel to the UK may create UK tax liability for your worldwide income and capital gains. Therefore, it is never too early to have an early UK tax assessment to be carried out.
Our offer Your Bespoke Global Wealth Strategy with the Emphasis on UK Taxation allows you to tackle a number of multiple issues all at once, such as frequently asked questions:
- What is the correct UK immigration category for me, my family or business?
- Should I become a tax resident in the UK? If so, what are the implications if I do?
- Do I need to use an SPV (special purpose vehicle) as I move, operate and invest in the UK?
- How do I preserve my family trust, business and fiduciary structures while I move, operate or invest in the UK?
- How can I save on FOREX costs, banking fees and levies each time I make a high value transaction in multiple currencies internationally?
This offer is ideal for you if:
- Your net worth is over £10M GBP;
- Group of assets or investments are in excess of £5M GBP;
- Your assets are unencumbered and are free from loan and debt relationships and claims.
A lot of my clients ask me in disbelief:
“Why do you say I am a UK tax resident while my visa doesn’t say the same.”
Yes. This realisation may come as a surprise. However, it does not mean that you may not be caught out as easily.
2. Monitor Your Initial UK Tax Advice Throughout the Years
The UK tax landscape changes very frequently several times a year and you need to be always watchful.
Sometimes, it is really difficult to stay on top and understand that a lot of legal and tax changes come about and do so continuously.
You may wish that nothing changes for the last 20 years, but things may change on a daily basis without a warning.
Therefore, it is your responsibility to monitor the changes and be on great terms with your trusted professional tax advisor.
3. Check Whether You Need to Claim Remittance Basis of Taxation Every Single Year
You also need to monitor the changes in your worldwide income and capital gains.
Sometimes, depending on your personal circumstances you may need to claim remittance basis of taxation, while in other years you may opt to be taxed on arising basis.
This has mainly to do with the UK annual personal tax allowance. In some years, it may be beneficial to make use of your annual personal tax allowance.
4. Work with your UK Tax Advisor and Start Preparing Your UK Tax Return Early
There are at least 2 advantages of starting to work early on your UK tax return:
- Learning about your UK tax liability early on;
- Opting for paper tax returns instead of the electronic one.
Once you submit your UK tax return, you will need to make sure that you pay tax for the tax year before 31 January. If your tax liability is a more substantial one, you will also be requested to pay the balancing payments for the next tax year.
You will need to pay half of your tax liability of the assessed tax liability until the 31st January and the next half until the 31st July.
Through the balancing payments you pay UK tax for the subsequent tax year during that tax year. For instance, you were assessed to pay 2X for the tax year ended 2023 before 31st January of 2024. You will pay 2X + X before the 31st January 2024 and before the 31st July 2024, you will pay the remaining X.
Therefore, you will need to know your UK tax liability before you are asked to pay any of the tax and balancing payments that are due. Sometimes you will need to budget to meet such financial obligations and avoid any penalties.
There are advantages to filling out the paper tax returns instead of the electronic filing. For instance, your tax affairs are a bit more complicated and the latest electronic software is simply not up to speed.
For instance, it is not possible to claim remittance basis of taxation when filling out UK tax returns directly through HMRC portal.
Therefore, you may be better off utilising the paper format instead. The deadlines are important to keep in mind.
The deadline for the paper format is 31st October and for the electronic one is the 31st January.
Therefore, if you are looking to submit your UK tax return for 2023, your deadlines will be 31st October 2024 and 31st January 2025 respectively.
5. Make Use of the Overseas Day Relief
Overseas day relief is available during the first 3 years of residence in the UK. It is a very useful tool to regularise your financial affairs before you move to the UK permanently. Overseas day relief only applies to persons who work.
For instance, an overseas company sends you to work in the UK, while you still have obligations with your old employer in the previous country of residence.
By claiming remittance basis of taxation, you are able to keep the proceeds of your old job and employer in the previous country of residence (if you do not need this income in the UK) and only pay UK tax on your current job and the duties performed in the UK.
You will need specialist UK tax advice to be able to arrange this properly and not to cause any issues for yourself in the future.
6. Avoid Mixed Funds
Before you moved to live in the UK, you may have paid little attention to the different types of funds arriving to your bank account. For example, you may have saved capital, employment income, dividends and proceeds of sale all arriving to the same bank account.
Sometimes, it is difficult to convince the clients as well as their private bankers that for UK tax purposes you need individual bank accounts to receive the income and gains from multiple different sources, such as:
- Interest income;
- Employment income;
- Taxed income;
- Non-taxed income;
- Taxed capital gains;
- Non-taxed capital gains;
- Proceeds of sale.
Depending on your individual circumstances, this list may go on indefinitely.
Swiss private banks based in Switzerland were some of the best examples who were able to adapt and implement UK tax rules for the benefit of their UK resident and non-domiciled clients.
7. Beware of CRS and Avoid UK Tax Evasion Schemes
CRS stands for Common Reporting Standards. This piece of legislation makes it mandatory for tax authorities to exchange information about their taxpayers. Therefore, UK tax authorities receive tax information about its residents from the tax authorities based overseas.
It may happen that you may receive a letter from UK tax authorities based on the information received from their overseas counterparts that you have not disclosed your all worldwide income.
You have nothing to worry about if you elected to claim remittance basis of taxation in the UK. However, you will still need to engage with the UK tax authorities and ask your UK tax advisor to cooperate with them on your behalf.
During this time you may wonder if you ever did anything wrong by opting to be taxed on remittance basis as letters from authorities may appear scary and need to be taken care of accordingly.
However, you may rest assured that the remittance basis of taxation is a specific exception permitted by law and not a UK tax evasion scheme.
In contrast, UK tax evasion schemes are designed to take advantage of the loopholes in the law.
Sometimes, you may be going about your day and not realising that you were sold a UK tax evasion scheme. This may happen as you are new to the system and simply not aware what to look out for and how to distinguish legal tax planning from a tax evasion scheme.
It is always good to ask the right questions and seek appropriate specialist advice. It is a requirement for the unauthorised tax schemes to be registered.
Remittance Basis of Taxation is Certainly Advantageous to the Taxpayer
Remittance basis of taxation may be advantageous to a newly UK resident taxpayer as it allows to regularise the international position for the taxpayer.
This is a legal requirement and not a UK tax evasion scheme. Even if your overseas income is reported through the CRS.
You cannot benefit from this UK tax regime indefinitely and remittance charge is applicable if the remittance basis of taxation is claimed for a long time.
You need to assess yearly whether the remittance basis of taxation or the arising basis of taxation is more appropriate for you in any given year.
There are certain advantages of starting working on your UK tax planning before you relocate to the UK or start spending more time in the UK. There are also advantages in preparing your UK tax return as early as possible and before the due deadline.
Need advice on how to become a remittance basis taxpayer and benefit from all the rules and exemptions that may be available to you, book a call with me.
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Saule Voluckyte, M.A.E.S, LL.B, FAIA
I have been working exclusively with UHNWI in Mayfair, London since January 2008. I built specialist knowledge and expertise required to serve ultra high net worth individuals investing, operating and relocating to the UK or Switzerland.
Within the industry, I am the single adviser who is able to traverse the different areas of expertise and bring a comprehensive approach across: global structuring, UK immigration, international taxation and FOREX to develop their global wealth strategy, while they build, grow and expand their wealth worldwide.
Previous experience as one of the senior advisors for the government, made me a go-to person when delicate and uncomfortable scenarios involving heads of state need to be handled with care and preserve privacy.