RDRM31195 - RDRM31195 - Remittance Basis: Introduction to the Remittance Basis: Unremittable income and gains

There are times when an individual is unable to transfer income or capital gains to the UK. For example, because of the laws of the territory in which the income arises or, in which an asset is situated at the time of disposal; or due to the executive action of its government, or to the impossibility of obtaining other currencies.

This might create hardship for UK residents on the arising basis who are chargeable on their worldwide income and gains but who cannot transfer their foreign income or gains to the UK. Special rules therefore exist which allow unremittable income and gains not to be brought into charge in the year in which they arise or acrue.

Individuals who choose to be taxed on the remittance basis are only chargeable on foreign income and gains remitted to the UK and therefore do not usually need to claim relief in respect of unremittable income or gains.

Unremittable foreign income and gains and under £2,000 threshold

The treatment of unremittable foreign income and gains may need to be considered where an individual is entitled to the remittance basis because their unremitted income and gains are less than £2,000. In calculating whether an individual’s unremitted income and gains are less than £2,000, the amounts of unremittable income and gains can be ignored if a valid claim for relief is made under ITTOIA05/s842(1) or TCGA92/s279(1).

If circumstances change and the income and gains cease to be unremittable, they are treated as arising or accruing in the year in which they cease to be unremittable, and will therefore need to be taken into account at that time.

Unremittable foreign income and gains - limits on remittable amount

In some instances there may only be a limit on the amount that may be transferred to the UK. Where this happens relief may only be claimed in respect of the amount of foreign income and gains that exceed the limit.

If an individual transfers money to the UK from an account that contains only capital, they cannot claim that the whole amount of their income and gains for the year is unremittable on the basis that no income was remitted. Any claim to relief will be restricted to the amount of foreign income and gains by which the limit is exceeded.

Example

Hans is a UK resident but non-domiciled individual. He has an account in South Africa that contains capital monies following a South African lottery win. This capital is kept separate from his foreign income and gains in a bank account especially designated for this purpose.

In 2008-2009 Hans chooses not to use the remittance basis, so is taxed on the arising basis. He makes a claim for relief in respect of unremittable income. During 2008-2009 Hans has income arising in South Africa equivalent to £34,000. However due to South African currency restrictions he is only able to transfer the equivalent of £29,000. During that year Hans transfers the equivalent of £21,000 to the UK from his cpaital account.

Hans cannot claim that the whole £34,000 is unremittable. Hans is chargeable on the arising basis on £29,000. Relief from UK tax can only be claimed for unremittable income of £5,000 (£34,000 - £29,000).

The fact that Hans has chosen to remit capital in place of his income is immaterial. Relief is only due in repect of the amount of income that is unremittable and that is the amount of income in excess of the South African currency regulations cap.