View the related Tax Guidance about Remittance
Remittance basis ― overview
Remittance basis ― overviewA non-UK domiciled individual is entitled to claim the remittance basis of taxation so that they only pay tax on their UK source income and gains, and any offshore income and gains brought into the UK in some form. This guidance note considers the application of the remittance basis to employment income, how to make a claim for the remittance basis and areas to watch out for.Standard remittance basis claimIn an employment context, the basic position is that under ITEPA 2003, s 22, the remittance basis can be claimed on earnings from a foreign employer which relate wholly to offshore duties and are paid into an offshore bank account. This is referred to in this note as a standard remittance basis claim. There are further scenarios in which it is possible to claim the remittance basis and these are explored further below.Overseas Workday Relief (OWR)A non-UK domiciled individual can claim OWR for the first three tax years for which they are resident in the UK. If the employee was previously UK resident, there must be a gap of at least three complete tax years before they can return to the UK and qualify for this relief again. The relief allows an employee to just be taxed on their earnings that relate to their UK duties and any sums that relate to the offshore duties which are remitted to the UK. At least the proportion of the salary which relates to the offshore duties should be paid
Automatic remittance basis
Automatic remittance basisBefore reading this note, it is recommended that you read the Remittance basis ― overview guidance note to familiarise yourself with the wider remittance basis regime.Most individuals who choose to use the remittance basis have to make a claim under ITA 2007, s 809B. See the Remittance basis ― formal claim guidance note.However, in three cases, the remittance basis is given automatically. These are where, in relation to a given tax year, the individual meets any of the following tests:•they have unremitted foreign income and gains totalling less than £2,000•they are under 18 at the end of the year, have no more than £100 of UK taxed investment income, and no other UK taxable income, and do not remit any relevant income or gains to the UK *•they have been resident in the UK for not more than six out of the last nine years, have no more than £100 of UK taxed investment income, no other UK taxable income, and do not remit any relevant income or gains to the UK ** Note that these latter two automatic remittance basis cases are affected by the abolition of income tax at source on UK interest from 2016/17 onwards and HMRC has adopted a relaxed approach to the application of the automatic remittance basis in these cases, as discussed below.The three cases of automatic remittance basis are discussed further below, but first this note considers two general points that apply to all three cases of
Payment of the remittance basis charge
Payment of the remittance basis chargeRemittance basis chargeThe remittance basis charge is an annual charge payable by ‘long-term’ UK residents for the privilege of claiming the remittance basis.Taxpayers who wish to utilise the remittance basis (but do not qualify for it automatically) must pay one of the following charges:•£30,000 per year where the taxpayer has been resident in the UK for at least seven out of the last nine years•£60,000 per year once the taxpayer has been resident in the UK for at least 12 out of the last 14 tax yearsITA 2007, s 809CNote that the £90,000 remittance basis charge was abolished with effect from 6 April 2017.The remittance basis is discussed in the Remittance basis ― overview guidance note and the remittance basis charge is covered in the Remittance basis ― formal claim guidance note.The Payment of tax due under self assessment guidance note discusses the various options available to the taxpayer to pay their self assessment tax liability.The remittance basis charge is part of that self assessment tax liability, but is worth considering separately, as payment of the charge from an overseas bank account is not considered to be a remittance of income or gains if:•the payment is made to cover the remittance basis charge, and•the payment is paid direct to HMRC from the overseas account (by cheque or via electronic transfer)ITA 2007, s 809VThe transfer of funds from an overseas account to a UK account to pay HMRC does not meet
Remittance basis ― overview with employment focus
Remittance basis ― overview with employment focusGeneral earnings in respect of duties performed in the UKEmployees who are resident but not domiciled in the UK for tax purposes are chargeable to income tax on general earnings for duties performed in the UK. Where all employment duties are UK duties, then all earnings are taxable in the UK. See ITEPA 2003, s 15.Overseas workday relief (OWR)Where duties are performed partly in the UK and partly overseas, a calculation is needed to determine how much of the earnings represent UK duties and how much represent overseas duties. The overseas duties may then be subject to OWR.Employees who are non-domiciled but resident in the UK on a short-term basis may benefit from relief from UK tax on overseas (or foreign) earnings under the OWR provisions.The following conditions must be met:•the employee is not domiciled in the UK throughout the year•the employee elects to be taxed on the remittance basis•the employment duties are carried on wholly or partly outside the UKThe relief is available for the year of establishing UK residence and the following two years. If an employee arrives at the end of a tax year they will receive a shorter period of OWR compared to an employee arriving at the beginning of a tax year. Planning can therefore be taken to maximise the relief by arriving at the beginning of a tax year. The number of tax years for which an individual can be eligible for OWR in
Remittance basis ― nomination, charge and payment
Remittance basis ― nomination, charge and paymentThe Remittance basis ― formal claim guidance note explains who can make an election for the remittance basis, and the consequences of making the election. You are advised to read that guidance note first.This note covers the machinery of the remittance basis charge (also referred to as the RBC), including nomination and payment.An outline of the remittance basis can be found in the Remittance basis ― overview guidance note. A discussion of what is meant by a remittance can be found in the When are income and gains remitted? guidance note.Remittance basis chargeIndividuals who have been resident in the UK for at least seven out of the previous nine tax years and who are over the age of 18 have to pay an annual charge to use the remittance basis. These are known as long-term residents. The amount of the charge depends on the length of time the individual has been resident in the UK:Period of UK residenceTax years in forceAmount of remittance basis charge per tax yearAt least seven out of the previous nine tax years2008/09 onwards£30,000At least 12 out of the previous 14 tax years2012/13 onwards£60,000 (was £50,000 for 2012/13 to 2014/15 inclusive)ITA 2007, s 809CThe £90,000 charge for those present in the UK for at least 17 out of the previous 20 years was repealed from 2017/18 onwards as part of the introduction of the concept of deemed domicile for income
NIC settlements for inbound employees with UK employer
NIC settlements for inbound employees with UK employerHMRC offers two arrangements that relax the strict PAYE procedures in respect of NIC. One of these is the modified NIC arrangement covering inbound employees who are ordinarily resident and domiciled outside the UK, but who have been sent to work with a UK employer or host employer, known as an ‘EP Appendix 7A ― Modified Class 1 and Class 1A National Insurance contributions for expatriate employees subject to an EP Appendix 6 agreement’ (EP APP 7A). The EP APP 7A application form for employers to complete who operate a tax equalisation agreement for employees coming to work in the UK from abroad is available at PAYE82003.Scope of agreementAs the name suggests, this arrangement can only apply to employees who are included in an EP Appendix 6 Modified PAYE agreement. This means that in order for an EP Appendix 7A agreement to apply the employee must be a foreign national assigned to the UK who is tax equalised (see the Tax equalisation guidance note) and has an employer or host employer in the UK liable for secondary UK NIC. Unlike with tax, the employer can, but is under no legal obligation to, pay the employee’s primary Class 1 NIC liability as part of the equalisation process. If the employer bears the cost of the employee’s NIC, this should be calculated on a grossed-up basis. HMRC provides information and an example on making settlements with grossed up NIC in COG908060.Many such employees remain
Non-domiciled and deemed domiciled beneficiaries
Non-domiciled and deemed domiciled beneficiariesIntroductionThe current tax position of non-domiciled and deemed domiciled beneficiaries of non-resident trusts is a complex landscape mapped by successive changes in the law. Before 2008, UK resident but non-domiciled beneficiaries were protected by a cost-free remittance basis option for income tax and, like non-domiciled settlors, they were exempt from attribution of capital gains within the trust. Major changes in 2008, 2017 and 2018 have incrementally brought non-domiciles into the regime under which UK domiciled beneficiaries of non-resident trusts are taxed.Changes introduced in 2008 scaled down some of the advantages of long-term non-domiciled status. The remittance basis charge was introduced to impose a cost on accessing the benefits of the remittance basis. See the Remittance basis ― overview guidance note in the Personal Tax module. At the same time, changes were made to the taxation of non-domiciled beneficiaries of non-resident trusts to bring their benefits from the trust within the scope of capital gains tax.Notwithstanding the imposition of a charge for the use of the remittance basis, public and political opinion continued to oppose the non-domiciled advantage. As a result, Finance (No 2) Act 2017 introduced the concept of deemed domicile for income tax and capital gains tax for the first time. Long-term residents of the UK, and those who were originally UK domiciled, can no longer benefit indefinitely from the remittance basis. Once they satisfy the conditions for deemed domicile, they become taxable on their worldwide income and gains.In conjunction with the introduction of
File management
File managementWhilst administering an estate it is extremely important to be able to locate all documents and correspondence received, make sure deadlines are recorded and met, and to know what stage you are at all times. The beneficiaries should be kept informed and updated regularly.Keeping track of documents and correspondenceThe administration of an estate can generate a huge amount of documentation. Obviously, the amount of paperwork varies according to the complexity and range of assets, liabilities and beneficiaries. Nevertheless it is advisable to adopt a consistent outline structure for record keeping which can be applied to each estate.Unless the estate is very simple, it is not advisable to simply file documents and correspondence in date order. You will need to refer to documents throughout the administration, and they will become increasingly difficult to find if the file is not organised in a segmented way. The aim is to keep all the documents on a particular asset or liability together, so that the ‘story’ for each asset etc. is quickly ascertained at any point, particularly when it comes to preparing the estate accounts.See the Table ― probate file index for a suggested file structure.There are some advantages to a chronological file, and practitioners may be reluctant to abandon such a system if that is what they use with their other paper files. If so, it is recommended that both a chronological file and a subject segmented file is kept with duplicates of essential documents such as valuation letters, remittance advices,
Autumn Statement 2022
Autumn Statement 2022Chancellor Jeremy Hunt delivered his Autumn Statement on 17 November 2022, setting out proposals to address a £55 billion gap in the UK’s finances, with half of that amount being raised through increased taxation.Personal taxesReduction to the additional rate band thresholdThe additional rate threshold for income tax will reduce from £150,000 to £125,140 with effect from 6 April 2023. The new threshold is £125,140 because the personal allowance is abated where the individual’s taxable income is between £100,000 and £125,140 (ie £100,000 plus (£12,570 x 2)). Had the new additional rate threshold been £125,000, this would have led to an effective marginal tax rate of 67.5% for income between £125,000 and £125,140 due to the withdrawal of the personal allowance and the 45% tax rate. For more details of the abatement of the personal allowance, see the Personal allowance guidance note.This change affects the taxable income of English, Welsh, Northern Irish and non-resident taxpayers and the savings and dividend income of Scottish taxpayers. Scottish taxpayers pay income tax on non-savings non-dividend income (commonly referred to as ‘non-savings income’ in practice) in accordance with the Scottish income tax rates and bands. Although the Welsh Government has the power to vary the rate of income tax that applies to non-savings income of Welsh taxpayers, it cannot vary the levels of the tax bands or create new tax bands. On 13 December 2022, the Welsh Government confirmed that the Welsh rate of income tax remains 10% in 2023/24, which means
Introduction to capital gains tax
Introduction to capital gains taxIn general terms, a charge to capital gains tax arises when a chargeable person makes a chargeable disposal of a chargeable asset. The disposal may produce a profit (known as a gain) or a loss.See Checklist ― calculation of capital gains and losses for issues to consider when reporting client gains and losses.This guidance note has been updated to reflect the changes announced in Spring Budget 2023.Chargeable personA chargeable person could be an individual, a trustee, a personal representative or a company, although companies are subject to corporation tax on chargeable gains not capital gains tax. For further discussion, see CG10700 and Simon’s Taxes C1.102. Exempt persons include, amongst others, charities (so long as the gain is applicable and applied for charitable purposes) and local authorities. See CG10760P.Generally, if an individual is resident in the UK in the tax year they are chargeable to tax on capital gains arising in that tax year. See ‘Overseas aspects’ below for a discussion on the taxation of gains on non-resident individuals and those accessing the remittance basis of assessment. Chargeable disposalThe most common way for a person to dispose of an asset is to sell it to another person. However, a gift or an exchange also constitutes a disposal for capital gains tax purposes. There are provisions within the capital gains tax legislation that provide for the loss or destruction of an asset also to be treated as a disposal. For a list of other deemed disposals, see
