FAQ: Residence and domicile - arising basis

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What is the arising basis of taxation?

If an individual pays tax on the arising basis, they pay tax on their worldwide income and gains.

It is called the arising basis because you pay the tax when the income and/or gains arise. This means that you pay tax on income in the year that you earn it and you pay tax on gains in the year that you make the gain.

What is the remittance basis of taxation?

If an individual pays tax on the remittance basis, they pay tax on their UK income and gains in the year that these arise. But they only have to pay UK tax on foreign income and gains when these are remitted (ie brought into) the UK, even where they arose in an earlier year. Foreign income which is not remitted to the UK is not taxed here.

Is it possible for me to be taxed on the arising basis from 6 April 2008, even though I have been using the remittance basis until now? I am a UK resident but I am not domiciled in the UK and my unremitted foreign income and gains are more than £2,000 but I am unable to afford the £30,000 charge that has been proposed?

Yes. Under the new rules it will always be possible to pay tax on the arising basis even if you have previously used the remittance basis.

Unless you make a claim to pay tax on the remittance basis, we will assume that you wish to pay tax on the arising basis.

If you pay tax on the arising basis you will not have to pay the £30,000 charge and you will be eligible for the appropriate personal allowances.

If I switch to the arising basis, can I remit money to the UK with no tax to pay on the remittance?

If you pay tax on the arising basis, you will pay tax on your worldwide income and gains arising in that year, and there will be no further tax when you remit that income or gains to the UK.

However, if you have untaxed unremitted foreign income or gains which arose in a year when you were claiming the remittance basis, you will have to pay tax if you subsequently remit that income or gains to the UK.

How do I notify HM Revenue & Customs (HMRC) that I wish to be taxed on the arising basis from April 2008?

Subject to two exceptions, explained below, individuals will be taxed on the arising basis unless they make a valid claim to be taxed on the remittance basis.

If you wish to be taxed on the arising basis and you have offshore income or gains that you need to tell us about you must fill in a Self Assessment tax return. If you do not already receive one of these you should request one from your local tax office by 5 October after the end of the relevant tax year. For example, for the tax year 2008-09 you will need to ask for a Self Assessment tax return by 5 October 2009.

The first exception is if you have less than £2,000 of unremitted foreign income and gains arising in a tax year. It will not be necessary to make a claim for the remittance basis, as it will apply automatically if you are eligible to claim it – broadly if you are not domiciled in the UK or not ordinarily resident in the UK. However you will need to fill in a Self Assessment tax return if you have tax to pay on income or gains that you remit to the UK.

The second exception is where you have no income or chargeable gains arising in the UK and you don’t remit any foreign income or gains to the UK and you are not liable to the £30,000 charge. In such a case the remittance basis applies automatically if you are eligible to claim it – broadly if you are not domiciled in the UK or not ordinarily resident in the UK.

If I opt to pay tax on the arising basis, will all offshore unremitted income and capital gains for the tax year 2007-08 have to be declared and appropriate tax paid, or will the tax only apply to unremitted offshore income and capital gains arising on or after 6 April 2008?

The arising basis means that you will pay tax on income and gains arising in that year. However, if you have previously been chargeable to tax on the remittance basis, you may have to pay tax on income and gains arising in a previous tax year if you subsequently remit any to the UK.