Annual Remittance Basis Charge (“RBC”) Print
The remittance basis charge, which is a UK tax on unremitted overseas income or gains, applies to those individuals who have been resident in the UK for more than 7 out of the past 9 years. For 2020/21 and 2021/22 the RBC is £30,000 and is payable by individuals claiming the remittance basis. Once the individual has been resident in the UK for more than 12 out of the past 14 years the remittance basis charge increases to £60,000 per annum.
The table below sets out the RBC payable where the remittance basis is claimed for 2021/22 and later years:
|First 7 years of residence in UK||Nil|
|Resident in UK for more than 7 years
out of past 9 years (Maximum period 5 years)
|Resident in UK for more than 12 years
out of past 14 years
|Resident in UK for more than 15 years
Out of the past 20 years
*Remittance basis no longer available, and all worldwide income and gains taxed on the arising basis.
The individual may be able to claim tax credit relief for the payment of the remittance basis charge in their home territory. This is particularly relevant to American taxpayers residing in the UK. The Internal Revenue Service (“IRS”) confirmed that US taxpayers may claim credit relief for the payment of the remittance basis charge, and that it would not limit this relief to the amount of income on which the RBC is paid.
The remittance basis tax charge does not apply to:
- Children under the age of 18, and
- Individuals whose unremitted offshore income and gains is less than £2,000 for the relevant year.
Julia became resident in the UK on 1 July 2014. She became 18 in March 2018. She will have been in the UK for more than 7 years on 6 April 2021 and if her overseas income and gains exceeds £2,000 for the year 2021/22 she will either have to pay tax on her worldwide income and gains for that year on the arising basis, or pay the £30,000 RBC. If she had arrived in the UK before 6 April 2010, then her choice would be between paying tax on the arising basis, or paying the £60,000 RBC as she would have been resident in the UK for more than 12 out of the past 14 years by 6 April 2021.
Under the deemed domicile rules, Julia will have been resident in the UK for more than 15 years out of the past 20 years by 6 April 2029, and from that date she will no longer be entitled to claim the remittance basis.
The RBC is payable as part of the individual’s normal tax under self-assessment.
Where the remittance basis tax charge paid for a year is categorised as income tax, then in most cases the individual will also have to make payments on account for the following year. Accordingly, if the RBC is paid for 2020/21 on 31 January 2022 the individual will also have to consider paying the first instalment of the 2021/22 charge at the same time, and the second instalment by 31 July 2022. If he does not intend to use the remittance basis for the year 2021/22 he may be able to make a claim to reduce his payments on account to the level of his anticipated tax liability for that year, including any tax on his overseas income arising in the year.
If the non-domicile decides not to pay the RBC, then unless his unremitted overseas income and gains are less than £2,000 he will have to pay UK tax on his worldwide income and gains. For many non-domiciles this will be the less costly option, and each individual will have to review his position to see whether it will be beneficial to claim the remittance basis. As a rule, for a £30,000 RBC, if the offshore assets produce income of less than £70,000 during 2021/22 for a 45% taxpayer, or £80,000 for an individual whose top rate of tax is 40%, then it will not be worthwhile claiming the remittance basis and it would probably be more tax efficient to pay tax on the arising basis.
For an individual who has been resident in the UK for more than 12 years the amount of offshore income increases to £112,000 for a 45% taxpayer, and £125,000 for a 40% taxpayer, before it is worthwhile considering payment of the RBC.
Where the remittance basis is claimed, the individual will no longer be entitled to the following allowances:
- Personal Allowance, including the Married Couple’s Allowance B
- lind Person’s Allowance
- Relief for life assurance payments
- Capital Gains Tax annual exemption.
There is a de-minimis limit where the unremitted overseas income and gains are less than £2,000 in any year, the remittance basis automatically applies, and the above allowances are not withdrawn. There is some scope for tax-planning here, albeit on a minor scale.
Jeff knows that his offshore income for 2021/22 will be £2,850. If he remits £851 to the UK by 5th April 2022 then the unremitted portion of his offshore income for the year will be less than £2,000, and the de-minimis exemption will automatically apply. In this case Jeff would only need to pay UK tax on the amount of £851 he remits to the UK, and would be able to retain the remaining £1,999 untaxed offshore without losing his personal allowances etc.
The remittance basis is claimable annually, and individuals may switch from one basis to the other depending upon which is more beneficial for a particular year. However anti- avoidance provisions bring into charge to tax any income or gains which arise in a year for which the remittance basis is claimed, even where this is brought into the UK in a year for which no such claim is made.
In the event that the individual pays the RBC he will have the choice of treating the payment as income tax, or CGT, or a mixture of both. The unremitted income or gains on which the tax is paid will not be taxed again if and when it is remitted to the UK. This is discussed below in the section titled “Nominated Account”.
Where the RBC is paid directly to HMRC from an individual’s overseas bank account, either by electronic transfer, or by cheque drawn on that account, the payment will not be regarded as a taxable remittance by that individual. HMRC advise that the individual should keep sufficient records, such as a copy of the cheque to demonstrate that the payment was sent direct from an offshore account. The funds should not be transferred to a UK account before payment is made as this will be treated as a remittance for tax purposes even where a specific remittance is made to the UK bank account to cover this payment.
HMRC state that payment of the RBC may be made out of overseas income in one or more amounts. It appears that they are also content that payments on account made from UK funds may subsequently be replaced with a payment of the whole amount of the RBC from untaxed foreign income at a later date. This may produce a repayment of the original tax paid out of UK income or gains.
It is possible that HMRC perceive the direct receipt from an overseas account as a way of obtaining details of the taxpayer’s offshore accounts, and it may be that the taxpayer should consider opening a further offshore account, possibly with another bank for the sole purpose of making these payments if he does not want HMRC to have details of his other offshore bank account. However, in these days of cross-border reporting requirements it is likely that HMRC will receive information regarding the offshore accounts in any event.