What is remittance?
If you are non-domiciled and choose to use the remittance basis of taxation, you need to understand what a remittance is.
There is more information about remittances in part 9 of RDR1 Guidance Note: Residence, Domicile and the Remittance Basis.
We look at below:
In broad terms, there is a remittance if you have foreign income or foreign gains and you bring them directly or indirectly to the UK so that you (or a relevant person) can enjoy the benefit of the income or gains in the UK.
There is also a remittance if you receive a service in the UK and pay for the service using income or gains that arose outside of the UK. If you buy an asset in the UK and pay for it using foreign income or gains, that is a remittance. If you purchase an asset overseas using foreign income or gains, and you then bring that asset to the UK, for example, a car or luxury goods, there is normally a remittance (see exceptions below).
If you create a UK debt and then pay that off using foreign income, that is a remittance.
If you give money to someone else who then uses that money to buy goods and services in the UK for you or a relevant person (see below), that is a remittance.
Not all remittances are taxable; see exceptions below.
A relevant person includes a husband or wife, civil partner, cohabitant plus children or grandchildren aged under 18.
Robert has come to the UK from Romania to work on a farm in Lincolnshire. He has been resident in the UK for less than 7 of the last 9 years so the Remittance Basis Charge does not apply to him. His only UK income is from the farmer who employs him. He sends his spare cash back to his wife and family in Romania, who spend it. He also has a bank account in Romania, which holds savings from before he went to work in the UK. The bank pays him 6.5% interest on his bank account balance; this produces the equivalent of £120 in 2019/20.
One day, Robert uses his Romanian debit card to draw out £50 that may well be Romanian bank interest.
Robert has made a remittance of £50 of his Romanian bank interest.
The consequences are as follows:
- He may have a UK tax liability on the remittance of £50 of Romanian interest. In order to determine how much of the remittance is taxable, Robert will have to analyse his Romanian bank account for all incomings and outgoings. Of course, Robert may also be entitled to the personal savings allowance that you can read about on our main LITRG website.
- He must notify HMRC of any liability before 5 October following the tax year in which the remittance is made, unless he already has to complete a Self Assessment tax return.
- He needs to determine the Romanian tax deducted from his Romanian interest by the Romanian bank.
- He needs to claim a double taxation credit against his UK liability which may eliminate the UK tax liability.
If possible, it is best to avoid making remittance of income or gains. It can be difficult to avoid making remittances without a full understanding of the law and advice from a tax adviser. You can find out where to find advice in our getting help section of the site.
Some items that have been bought with foreign income or gains may be brought into the UK without incurring a tax charge, including:
- items of clothing, footwear, jewellery or watches that are brought to the UK for personal use. If you sell the items once they are in the UK they no longer qualify as exempt and will be considered to be remittances;
- property with a value of less than £1,000;
- property which is only in the UK for less than 275 days in total.
It may not always be easy to tell what income or gains you have remitted, especially if you put more than one type of income or gain into an account.
For example, if Robert from Romania (in the example above) paid his UK money into the same bank account as his Romanian bank interest, and then remitted money from this account to the UK, Robert would have to follow complex rules to help him decide whether the remitted money was the interest or the UK money.
If you make a remittance to the UK from a bank account that contains income from more than one source, you should seek help from HMRC and/or a professional tax adviser.