Paying tax on the remittance basis - an introduction

If you have foreign income and/or capital gains and you are 'UK resident' and either 'not ordinarily resident' or 'not domiciled' in the UK (or both), you might choose the 'remittance basis' to pay some of your UK tax. You may have to pay a charge of £30,000 or £50,000, called the 'remittance basis charge', each tax year you use the remittance basis.

On this page:

The 'remittance basis' or the 'arising basis' of taxation?

This guide focuses on the 'remittance basis' of taxation where you pay UK tax on both:

  • your UK income and capital gains
  • any foreign income and capital gains that you bring (or 'remit') to the UK

The remittance basis contrasts with paying tax on the 'arising' basis - whereby you pay UK tax on:

  • your UK income and capital gains
  • all of your foreign income and capital gains

The remittance basis rules are complicated and generally involve additional record keeping.

If you are UK resident and either not ordinarily resident or not domiciled in the UK (or both), each tax year you can choose whether to use the remittance basis. You don't have to use it if you don't want to.

The remittance basis is not relevant if you are not UK resident.

Find out more about the meaning of residence and domicile by following the links below.

Meaning of residence and how it affects your tax

Meaning of domicile and how it affects your tax

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What is a remittance?

A straightforward remittance is any money or other asset (for example, property or investments) to which all of the following apply:

  • it comes from foreign income and/or foreign gains
  • it has not been taxed in the UK
  • it is brought into the UK by or for the benefit of a 'relevant person'

A relevant person includes you, your spouse, civil partner or child or grandchild under the age of 18. It can also include companies and trustees of settlements connected to a relevant person. Read a full definition of a 'relevant person' in section 5.9 of booklet HMRC6 'Residence, domicile and the remittance basis' by following the link at the end of this section.

A remittance also includes using your foreign income and/or gains to pay for a service provided in the UK.

There are also rules relating to:

  • debts brought into the UK or used to provide goods and services in the UK
  • gifts to gift recipients
  • certain 'connected operations'

You can find more information about remittances in part 5 of booklet HMRC6 'Residence, Domicile and the Remittance Basis'.

HMRC6 'Residence, Domicile and the Remittance Basis'

Types of remittance that are exempt from UK tax

In some instances remittances of foreign income or gains are treated as if they were not remitted to the UK and so do not need to be taxed in the UK. These are commonly referred to as exemptions.

The most common exemptions cover:

  • items of clothing, footwear, jewellery or watches that are brought to the UK for personal use
  • items with a value of less than £1,000
  • payment of the remittance basis charge
  • certain qualifying investments (from tax year 2012-13)

You can find more information about remittances and exemptions in part 5 of booklet HMRC6 'Residence, Domicile and the Remittance Basis'. You can find more information about qualifying investments in the note ‘Reform of the Taxation of Non-Domiciled Individuals’

HMRC6 'Residence, Domicile and the Remittance Basis'

Reform of the Taxation of Non-Domiciled Individuals

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If you are UK resident but not UK domiciled - using the remittance basis

If you are UK resident but not domiciled in the UK and you choose to use the remittance basis, the rules vary according to your particular situation.

Find out what resident and domicile mean by following the relevant links below.

Meaning of residence and how it affects your tax

Meaning of domicile and how it affects your tax

If you've less than £2,000 foreign income and/or gains that you leave abroad during the tax year

If you have less than £2,000 foreign income and/or foreign capital gains that you leave abroad during the tax year you can use the remittance basis without having to make a claim or complete a Self Assessment tax return.

You will:

  • be automatically taxed on the remittance basis (unless the rules for foreign workers with employment income from abroad apply instead - see below)
  • pay tax on your UK income and capital gains
  • keep your entitlement to the UK Personal Allowance and the Annual Exempt Amount for Capital Gains Tax
  • declare the foreign income and gains on which you have not paid UK tax but which you remit to the UK on a tax return (in these circumstances a tax return will be required)
  • pay tax on the foreign income and capital gains that you remit to the UK
  • not have to pay the remittance basis charge

Read Part 5 of booklet HMRC6 'Residence, domicile and the remittance basis' for further details of how this may affect you.

HMRC6 'Residence, Domicile and the Remittance Basis'

Personal Allowance

Annual exempt amount for Capital Gains Tax

If you've £2,000 or more of foreign income and/or gains that you leave abroad during the tax year

If you have £2,000 or more of foreign income and/or capital gains that you leave abroad during the tax year you will have to make a claim to use the remittance basis by completing a tax return.

You will lose your entitlement to the UK Personal Allowance and the Annual Exempt Amount for Capital Gains Tax. An annual £30,000 or £50,000 remittance basis charge may also be due in certain situations.

Read Part 5 of booklet HMRC6 'Residence, domicile and the remittance basis' for further details of how this may affect you.

HMRC6 'Residence, Domicile and the Remittance Basis'

Personal Allowance

Annual exempt amount for Capital Gains Tax

Read the note 'Reform of the Taxation of Non-Domiciled Individuals' about the introduction of the £50,000 charge and changes to the rules in tax year 2012-2013

Reform of the Taxation of Non-Domiciled Individuals

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If you are UK resident and UK domiciled but not ordinarily resident in the UK - using the remittance basis

When you have foreign income your ordinary residence might have a bearing on what UK tax you pay on that income. If you are resident and domiciled but not ordinarily resident in the UK, you will still have to pay UK tax on any income and gains which arise or accrue here and on any capital gains on the disposal of foreign assets, but you might wish to claim the remittance basis of taxation for your foreign income.

Find out what 'resident' and 'domicile' mean by following the relevant links below.

Meaning of residence and how it affects your tax

Meaning of domicile and how it affects your tax

The remittance basis will only apply to your foreign income. Any capital gains will be liable to tax on the arising basis, that is, in the year that the gain accrues. If you use the remittance basis you will lose your entitlement to the Annual Exempt Amount for Capital Gains Tax even though you have to pay tax on total worldwide gains.

Annual exempt amount for Capital Gains Tax

If you are UK resident and UK domiciled but not ordinarily resident in the UK and you choose to use the remittance basis, the rules vary according to the amount of foreign income that you do not remit to the UK.

If you've less than £2,000 foreign income that you leave abroad during the tax year

If you have less than £2,000 foreign income that you leave abroad during the tax year you can use the remittance basis without having to make a claim or complete a tax return.

You will:

  • be automatically taxed on the remittance basis (unless the rules for foreign workers with employment income from abroad apply instead - see below)
  • pay tax on your UK income and worldwide capital gains
  • keep your entitlement to the UK Personal Allowance
  • declare the foreign income on which you have not paid UK tax but which you remit to the UK on a tax return (in these circumstances a tax return will be required)
  • pay tax on the foreign income that you remit to the UK
  • not have to pay the remittance basis charge

Personal Allowance

If you've £2,000 or more of foreign income that you leave abroad during the tax year

If you have £2,000 or more of foreign income that you leave outside the UK during the tax year you will have to make a claim to use the remittance basis by completing a tax return.

You will lose your entitlement to the UK Personal Allowance.

Read Part 5 of booklet HMRC6 'Residence, domicile and the remittance basis' for further details of how this may affect you.

HMRC6 'Residence, Domicile and the Remittance Basis'

Personal Allowance

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If you are a 'dual resident'

If you are a UK resident and also resident in another country then, if there is a double taxation agreement with that other country, you might not lose your entitlement to the UK Personal Allowance or the Annual Exempt Amount for Capital Gains Tax as described in the earlier sections. Read the HM Revenue & Customs (HMRC) guide on double taxation for more on double taxation agreements and chapter 2 of HMRC technical guidance on the remittance basis for more on when you might lose your Personal Allowance by following the links below.

Double taxation agreements

HMRC technical guidance on the remittance basis

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If you are non-domiciled and employed in the UK but have employment income from abroad

There are some special rules for 'foreign workers' in the UK that mean you will be exempt from paying Income Tax on your foreign income. The exemption is due for a tax year if all of the following apply for that year:

  • you are resident in the UK
  • you are not domiciled in the UK
  • you are employed in the UK and pay tax on your earnings under PAYE (Pay As You Earn)
  • your foreign employment income is less than £10,000 and it was taxable in the country it arose (even if no tax was paid, for example because it was covered by a tax allowance in that country)
  • your relevant foreign income (such as bank interest) is less than £100, and is taxable in the country it arose
  • you have no other foreign income or capital gains
  • your worldwide income and capital gains are less than the higher rate threshold for the tax year (£34,371 in tax year 2012-13)
  • you are not required to complete a tax return for any other reason (for example, you are self-employed) - check if you need to complete a tax return by following the link below

This means that you will not be liable to UK tax on your foreign income when it arises or when it is brought to the UK. You will still be liable to UK tax on your UK income.

Do you need to complete a tax return?

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Temporary non-residents and the remittance basis

If you were a UK resident and moved abroad for less than five full tax years before returning to the UK you will be 'temporarily non-resident' for the period you were away.

Temporary non-residents - income

If you were temporarily non-resident and you were resident in the UK for at least four of the last seven tax years before you left the UK, you will have to pay tax on any remittances of 'relevant foreign income' that were brought to the UK. This applies during the period you were not resident in the UK, where this 'relevant foreign income' is from a tax year in which you were resident in the UK and paid tax on the remittance basis. UK tax will be due in the year you become UK resident again.

'Relevant foreign income' is any foreign income that arises from a source outside the UK and is not from your employment (for example, dividends, business profits, pensions, interest and royalties).

You can find more information about temporary non-residents and what relevant foreign income the remittance basis will apply to within the notes to form SA109 Residence, remittance basis etc and in part 5 of leaflet HMRC6 'Residence, Domicile and the Remittance Basis'.

SA109 Notes Residence, Remittance Basis, etc

HMRC6 'Residence, Domicile and the Remittance Basis'

Temporary non-residents - capital gains

You will also have to pay tax on any capital gains that arose while you were temporarily non-resident, including remittances of earlier foreign capital gains.

You can find further information about this in help sheet HS278 Temporary non-residents and Capital Gains Tax.

HS278 - Temporary non-residents and Capital Gains Tax (PDF 94K)

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Paying the remittance basis charge

If you pay the remittance basis charge using untaxed foreign income and/or capital gains from outside the UK, the payment itself will be a remittance unless you make the payment direct to HMRC in one of the following ways:

  • by cheque (drawn on a foreign bank account)
  • by an electronic transfer of funds

If the remittance basis charge is later repaid to you by HMRC, it will be regarded as a remittance when the repayment is made and will be subject to UK tax at that point even if repaid into a foreign bank account.

How to pay the remittance basis charge

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Getting professional help

Understanding the remittance basis of taxation can be difficult. You might like to get professional advice from a tax specialist or accountant.

In order for HMRC to be able to communicate with your agent, you need to fill in form 64-8 Authorising your Agent.

Find out more about completing form 64-8

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More useful links

Technical guidance on the remittance basis

Reform of the Taxation of Non-Domiciled Individuals

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