Remittance basis means that if you don’t bring foreign earnings into a UK bank account, you don’t pay UK tax on it. This is a particular tax situation for UK residents who don’t consider themselves to be domiciled in the UK and have earned money abroad.
However, if you choose to claim the remittance basis, you will lose your UK tax-free allowances, and eventually you will also have to pay a special additional charge.
This charge starts at £30,000 a year if you’re a non-domiciled individual and have been resident in the UK for at least seven out of the previous nine tax years. After twelve years the charge rises all the way to £60,000.
Of course, you will still have to pay UK taxes on any income or capital gains you made in the UK.
When you make more than £2,000, then you must report this income/gains to HMRC. You do this via Self Assessment and pay tax on it. You’re then left with a choice. You can either pay UK tax on this income, or you can claim the ‘remittance basis.’
The remittance basis is when you don’t pay UK taxes on earnings from abroad unless you transfer that money into a UK bank account. That means you choose be taxed only on whatever UK income and gains you make, and the foreign income and gains you bring back to the UK.
Although this is a tax advantage, it’s worth noting that if you decide to do this, you’ll:
However, the benefit of these two options is that neither is set in stone. For example, one year it may be more tax-efficient for you to pay tax on your foreign income or gains. This is instead of claiming the remittance basis.
This is dependent on the Double Taxation Agreement between the UK and your permanent residence. You can learn more about double taxation agreements with our helpful article!
In the UK, you must keep your tax records for at least six years from the end of the relevant tax year. Accounting software can help you to digitally store your records without taking up space in your office!