If you are reading this, the chances are you are either Resident Non-Domiciled in the UK (RND) or you may know someone who is, and so this article might be useful to them.

In the UK, people are usually taxed on their worldwide income regardless of where it is incurred, which is known as the ‘arising basis’. RND individuals living in the UK for less than 15 years can limit the scope of taxation to UK source or remitted income. This is known as the ‘remittance basis’ and to benefit from it, the individual should be resident non-domiciled in the UK and claim the treatment via UK tax returns. For the remittance to be applied to both offshore income and gains, it should be claimed annually. Individuals can elect whether to use the remittance basis year-by-year, without any impact on subsequent years.

If you are unsure of your residence or domicile, please see our Introduction to Remittance Basis and Introduction to Domiciles guides for further information.

If you are non-domiciled and have or are considering the use of the remittance basis, then the following two key points should be considered each year:

1. Remittance or arising basis?

Did you know as an RND, you automatically qualify for up to £2,000 of offshore income/gain tax free if unremitted, even without claiming the remittance basis.

Since 2008, there have been regular reviews and modifications to this tax regime.  Currently, it is no longer possible to benefit from the remittance basis without paying a specific charge called the Remittance Basis Charge (RBC) if you have been resident in the UK for seven out of nine tax years. In addition, it is no longer possible to exclude your offshore assets for UK inheritance tax purposes for more than 15 years out of 20.

Did you know, there is a way to pay the RBC from offshore funds without triggering a remittance?

 

2. Clean capital, mixed funds, segregation and remittance

Clean capital generally covers all assets owned prior to arriving in the UK or new funds that have been taxed in the UK and have been segregated since arrival. Clean capital does not need to be kept in the UK, it can be held offshore and can be sent to the UK at any time without incurring any further tax (so long as it has not been mixed with any untaxed income or gains).

In comparison, any funds derived from income or gains that have not been taxed in the UK, by virtue of the remittance basis are generally called “mixed-funds” or “unclean capital”.

Mixed funds become taxable in the UK if they are sent to an account in the UK or are used to pay for goods and services in the UK. This is called a remittance and should be subject to UK tax on the nature of the remittance.

Ensure that clean capital is kept ‘clean’ or it will be difficult and costly to un-mix if some of the funds need to be used in the UK. It is also important therefore to maintain clear and accurate records of the source of funds.

The usual traps

• If you have invested in a product or wrapper that is tax efficient in a different country, it is not guaranteed to be recognised as tax-efficient in the UK as well. For example, a French PEA (‘Plan Epargne Action’) is the same as a stocks and shares ISA in the UK. If you opened an account when living in France but did not close it when you moved to the UK, any income and gain within the PEA will have to be declared and taxed in the UK unless you benefit from the remittance basis.
• If you have invested in an ‘Assurance-Vie’ from France, Luxembourg or Switzerland, they are specifically excluded from the remittance basis. Any withdrawal from such investments may be subject to UK tax, even if the remittance basis is claimed and the funds are not remitted to the UK. If you have invested in such products, you need to seek advice and manage them accordingly.
• Inter-spousal gifting from a UK domiciled individual to a non-domiciled individual does not benefit from the standard relief, but is limited to the nil rate band and seven-year survival.
• Most banks offer fixed term deposits offshore as they generally cause less issues regarding remittances. However, the interest received at the end of the fixed term has to be paid into a different account than the original capital to avoid tainting your capital and creating a mixed fund.
• It is most important to keep offshore capital segregated from any type of income or gain where possible. Otherwise, you may reduce your future flexibility and funds may not be available for important investments such as a house, without a tax consideration on remittance.

These are just some of the areas to consider. We recommend that you discuss your position with your financial adviser so that you can consider what actions might be beneficial in your personal circumstances.

Adrien Landreau
Partner 
alandreau@partnerswealthmanagement.co.uk
020 8051 9452

 

The contents of the article have been prepared solely for information purposes. The article contains information on financial products and services and such information is designed for and addressed solely to individuals seeking generic industry information.