Rules benefit UK non-domiciles
Autumn 2009
Low income overseas workers coming to the UK have found their tax position simplified by new rules that have been introduced in the past few years covering overseas income and the so-called ‘remittance basis’. In contrast, people with relatively high income and gains have generally found the changes unhelpful.
The changes only apply to individuals who are resident but not domiciled in the UK, and they are back-dated to apply from 6 April 2008. Domicile is a complicated concept, but very roughly speaking it describes the country that people regard as their home.
Choice of remittance or arising basis
UK residents are taxed on their worldwide income and capital gains as they arise in each tax year. However, if you are not domiciled in the UK or you are treated as not ordinarily resident in the UK in any tax year, you can make a claim to be taxed only on the amount of foreign income and gains that you actually bring in, or remit to the UK. This is called the ‘remittance basis’ of tax.
If your unremitted foreign income or gains are less than £2,000 in a tax year, you are taxed on the remittance basis by default. You do not have to file a tax return to declare this, and you do not lose any entitlement to UK personal allowances or your capital gains tax annual exemption. Others who claim the remittance basis do lose these allowances, so need to weigh up whether they are better off being taxed on their worldwide income, whether or not it is remitted to the UK. Either way, you will need to file a self-assessment tax return.
After you have been long-term resident in the UK (ie, here for seven out of the preceding nine tax years) and are aged 18 or over, you have to pay a remittance basis charge (RBC) of £30,000 each tax year in order to continue using the remittance basis – otherwise you will be taxed in the UK on your worldwide income. However, you will not be liable to the RBC if your unremitted income and gains are less than £2,000 in the tax year.
Low UK income – no self-assessment tax return
If you have no UK income or gains other than up to £100 of income taxed at source, and you make no remittances of any foreign income into the UK in that tax year, you do not have to file a UK tax return. This new rule is designed to ensure that if you are working in the UK, your spouse or other members of your family who accompany you do not necessarily have to submit UK tax returns.
New income tax exemption
A new income tax exemption ensures that there will be no
additional UK tax charged on your foreign income if you are a low income employee working in the UK, and your foreign income has already been taxed abroad. This exemption is designed to simplify the remittance basis tax rules for migrant workers who come to the UK for short spells of employment, typically in agricultural or service sectors.
The new income tax exemption will apply to those who are resident, but not domiciled, in the UK in the tax year with foreign earnings of £10,000 or less and foreign bank interest of not more than £100, as long as these amounts are fully taxed abroad. The foreign income will not be subject to any additional tax in the UK, if the individual is not liable to higher rate tax in the UK, or already required to file a UK tax return
