How much tax do you pay in the U.K.?

The Remittance Basis of Taxation

The key points of the remittance basis of taxation are as follows:

Deemed Domicile: Since 6 April 2017, people who’ve resided in the U.K. longer than 15 of the last 20 tax years will pay all taxes. After this period, you can no longer use the remittance basis. You will pay tax on worldwide income and be charged U.K. inheritance tax. Your child will be deemed domiciled once they reach adulthood.

Formerly Domiciled Residents (FDRs): If you’ve left the U.K. but want to return after choosing a domicile elsewhere, you have a one-year grace period to become a U.K. resident before your worldwide assets are hit with inheritance tax.

Domicile Status: To be recognized as a non-U.K. domicile, you must prove your intent to leave the U.K. to HMRC.

Anyone domiciled outside of the U.K. can choose to pay tax on investment income outside the U.K., non-U.K. capital gains, and offshore income only if they’re remitted to the U.K. Any income that isn’t sent to the U.K. will not be taxed. You should seek professional advice if you plan to use overseas funds as collateral for loans taken to the U.K.

You must meet the following criteria to be eligible for the remittance basis of taxation:

• If you are a U.K. resident but not domiciled and pay the annual remittance charge, you must submit a claim to use the remittance basis.
• The remittance basis automatically becomes effective if you’ve unremitted overseas assets of less than £2,000 in one year.
• The same applies if you’ve been a U.K. resident for less than seven out of the previous nine years, or you’re under 18, without U.K. income and gains, and don’t remit any foreign payment.

If you claim the first category outlined above, you will no longer be eligible for the tax-free personal allowance and the capital gains tax annual exemption.

In the second and third categories, you will be taxed on a remittance basis but won’t lose your personal allowance or pay the remittance basis charge.

Remittance Basis Charge: The remittance basis charge is suitable if you want to claim the remittance basis but have resided in the U.K. for at least seven out of the past nine years and are over 18.

To claim this, you will need to pay £30,000 each tax year to be eligible for the remittance basis of taxation. But if you’ve been non-domiciled and resided for 12 out of the previous 14 years, you will have to pay £60,000.

Remittances: Your foreign income and gains will be taxed if you send them to the U.K. Statutory rules apply to decide how income is treated from a mixed fund (income from a variety of capital/foreign income/gains and/or from different tax years).

You may also face tax charges for any assets you bring to the U.K. funded with foreign income.

But there may be exemptions for personal assets worth less than £1,000 and assets brought for repair or public display.

Business Investment Relief: A business investment relief is available for any U.K. resident and non-domiciled persons wanting to conduct business. It allows you to make non-taxable remittances to finance a company in the U.K.

This rule also applies to investments. They can include commercial property, shares, securities, or loans.

Currently, the U.K. is favored by non-doms to both begin and continue to build a business. You should be careful when you remit any money to use toward this because you have to meet strict criteria to be eligible for the relief.