What is a Remittance Basis Taxpayer?
UK tax rules allow non-UK domiciled individuals to be taxed on remittance basis instead of an arising basis of taxation.
Remittance basis of taxation means that you are taxed on funds you remit (bring) to the UK instead of your worldwide income, proceeds and capital gains.
Arising basis of taxation means you are being taxed on your worldwide income, proceeds and capital gains as it arises due to your tax residence in the UK.
What are the Six Advantages of a Remittance Basis Taxpayer?
Let’s list and summarise six advantages of becoming a remittance basis taxpayer.
1. It’s a Privilege
This treatment is an exception from general UK tax rules that only apply to international individuals who are known as non-doms. Only international individuals can apply for this differential treatment.
2. Perfect for International individuals and their families
There may be many different reasons why individuals and their families may want to relocate and live permanently in the UK.
Ability to choose to be taxed on remittance basis of taxation is a perfect solution to international individuals and their families.
3. An opportunity to organise your own financial affairs
It allows you to be in control of your finances and make the necessary arrangements before you become tax resident in the UK and start to claim remittance basis of taxation.
4. Bringing in your capital tax-free before becoming tax resident
The regime allows you to bring your overseas capital to the UK tax free without having to differentiate between clean, taxed and non-taxed proceeds. You are encouraged to bring it all before you become a UK tax resident.
5. Genuinely avoiding double taxation
It is the purpose of the international framework of double taxation treaties to avoid the perils of double taxation. Double taxation happens when the same category of income, proceeds and capital gains are taxed by several countries.
Although the international treaties are designed to avoid this problem, they mostly fall short as different national tax codes will have different treatment and understanding attached to income, proceeds and capital gains.
For instance, the UK usually offers a tax credit almost automatically where there is double taxation. However, it does not mean that the taxpayer recovers all tax paid overseas. The recovery is usually a partial one and not a complete one.
Depending how you plan your financial and tax affairs and the quality of the professional advice you receive, you are able to do away with double taxation if you apply the rules of remittance basis of taxation in their entirety.
6. Optimising your overseas day relief
Overseas day relief is another exemption as you regularise your overseas financial and tax affairs.
Overseas day relief applies to individuals who continue to work overseas while becoming tax resident in the UK.
In fact, overseas day relief permits international individuals to continue to work overseas and keep their earnings overseas as long as they do not need to bring it to the UK.
This is a versatile tool, which allows flexibility to the individual and the employer where different job roles can be performed under two different contracts in the UK and overseas.
A Word of Caution
Remittance basis of taxation in the UK allows many international individuals to derive and maintain a number of financial and tax benefits, such as:
- To be a part of exclusive club for a limited period of time;
- To derive all beneficial benefits as international individuals;
- Effectively organise your financial affairs internationally;
- An opportunity to bring all your capital to the UK tax free;
- A tool to avoid double taxation;
- Optimise your international work contracts.
It is suggested that should Labour win the next national election, the government will bring a non-dom remittance basis taxpayer regime to the end.
After all, it was Labour’s initiative to view the non-dom regime more restrictively and bring more international individuals into the UK tax net.
Of course, this move is less advantageous for a country such as the UK that is keen to attract international capital as much as possible and keep its reputation as the premier international investment centre.
Now is the time to reach out professional advisors like myself to discuss the next best options should the regime be subsequently abolished.
There are still a number of viable options that can exist simultaneously. The best time to benefit from these options is now or before you become a UK tax resident.
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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.