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Cashflow and overseas funds

Author

Rachel Wagstaff

Rachel joined ETC Tax in January 2018 having worked in tax for the past 6 years.

Cashflow and overseas funds

Cashflow is currently an issue for a lot of individuals and businesses due to Covid-19 which has bought the world to a standstill. Many businesses and individuals, in particular those that are self-employed, are struggling to maintain a good cashflow. As there is still some uncertainty surrounding the timeline and lifting of the lockdown measure, some individuals who have savings and investments overseas, may decide they want to bring some of their overseas funds into the UK to tide them over.

But what impact could this have?

For individuals that are not domiciled in the UK and who have previously claimed the remittance basis of taxation, bringing overseas funds into the UK may crystallize a tax charge.

The remittance basis

Where the remittance basis applies, UK source income and gains are taxable as they arise, but foreign income and gains are excluded from UK tax and are only taxable if they are remitted to the UK, whether in the year the foreign income and gains were realised, or in a later year.

What is a remittance?

A remittance of funds into the UK is usually though the transfer of money from an overseas bank account to a UK bank account. However, there are many other ways that funds can be remitted to the UK and we have listed a few examples below:

  • Using an overseas credit card in the UK and settling the balance off with overseas funds;
  • Paying off the balance of a UK credit card with overseas funds, even if the UK credit card was used overseas;
  • Where a service is provided in the UK and this is paid with overseas funds;
  • Bringing assets into the UK that were purchased using foreign income and/or gains (subject to exceptions);
  • Purchasing flights which start or end of the UK.

The rules regarding what constitutes a remittance are complex and professional advice should be sought before you bring any funds into the UK.

What if I transfer money to a family member?

There are also restrictions where overseas funds are transferred to a ‘relevant individual’ in the UK. A relevant individual includes a spouse, civil partner, children, grandchildren under the age of 18 or a cohabitee. Such transfers are still considered to be taxable remittances on the individual that transferred the funds. This includes making a gift to a relevant individual’s overseas account which is then bought into the UK by the recipient.

Business Investment Relief

Non-UK domiciled individuals looking to inject cash into UK trading companies, may be able to bring their previously excluded funds to the UK rules without triggering a tax charge. Business Investment Relief operates by enabling non-UK domiciled individuals to make tax free remittances of foreign income and gains, providing that the funds are used for qualifying investments and within strict time limits.

In order to qualify for Business Investment Relief a number of conditions need to be met and further details in relation to this can be found in Andy Wood’s article https://www.etctax.co.uk/business-investment-relief/.

If you have any queries regarding the tax consequences of bringing your overseas funds into the please do not hesitate to contact us for further advice.

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