What is a remittance?
Non-UK domiciled individuals have the ability to claim the remittance basis which means that their overseas income or gains are not subject to UK tax if the funds are not ‘remitted’ to the UK.
The transfer of money by the taxpayer from their overseas bank account to their UK bank account is clearly a remittance. But there are many other ways that funds can be considered to be remitted to the UK.
Assets brought to the UK
The purchase of assets overseas which are then bought into the UK such as painting, cars and electronics are considered to be remittances.
Nonetheless, some assets can be bought into the UK without constituting a remittance. These include the following:
- Assets bought into the UK with a value of less than £1,000;
- Items of clothing, jewellery, footwear and watches that are bought into the UK by you for your personal enjoyment. If these are then sold at a later date, they will no longer be considered to be exempt and will be a chargeable remittance;
- An asset that is bought into the UK for less than 275 days before being transferred back overseas;
- Assets brought to the UK for repair or restoration, e.g. work sof art;
- Assets purchased with “clean capital” such as assets which were purchased prior to becoming UK resident;
- Using an overseas credit card in the UK and paying the balance off with overseas funds will be considered to be a remittance. As will paying off the balance of a UK credit card with overseas funds, even if the UK credit card was used overseas, the fact that the credit card is a UK card will mean that a remittance will occur.
Payment for UK services
Where a service is provided in the UK and this is paid with overseas funds, this will also constitute a remittance.
Collateral for debts
Overseas income and gains used as collateral for a “relevant debt” may give rise to taxable remittances.
Overseas loans, overdrafts and similar credit facilitate the acquisition of property in the UK or payment for services provided in the UK may be such relevant debts.
The overseas income and gains used to pay the interest, as well as repay the capital, is taxable as a remittance.
Payment of tax
The payment of tax itself from an overseas account could itself amount to a remittance giving rise to an additional tax liability to the extent that it consists of income and gains rather than clean capital..
If the remittance basis charge is being paid however, that can be paid directly to HM Revenue & Customs without giving rise to a taxable remittnace.
Transfers to others
If money is transferred to a “relevant individual” that too is considered a taxable remittance and a liability to tax would arise on the individual transferring the funds rather than the individual remitting the funds to the UK.
“Relevant individuals” include spouses, civil partners, cohabitees, and children or grandchildren under the age of 18.
Consequently, a gift to a relevant individual’s overseas account which they then bring into the UK is a taxable remittance for the individual who made that gift.
A further potential remittance arises where funds are transferred to a “gift recipient” who then passes those funds, or assets deriving from those funds, to the original transferor or relevant individuals.
There are a wide range of circumstances under which a remittance may arise.
If you think you have undeclared remittances to the UK or wish to bring funds into the UK and want to understand the tax consequences of doing so, please contact us for further advice.