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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

HM Revenue & Customs
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Remittance Basis: Introduction to the Remittance Basis: Foreign Income and Gains: Relevant Foreign Income - allowable expenses

Where a taxpayer elects to pay tax on the remittance basis, the taxable amount of their ‘relevant foreign income’ RDRM31140 is the amount remitted in that tax year ITTOIA05/s832.

This means that it is not possible for a taxpayer to deduct expenses (such as the cost of collection or legal costs) from, for example: foreign dividends, interest or royalty payments.

However, taxpayers who carry on a trade, profession or vocation wholly outside of the UK are able to claim the same deductions as are allowed to an individual who carries on a trade, profession or vocation in the United Kingdom - ITTOIA05/s832B. Refer to Business Income Manual BIM42100+ for information about allowable deductions.

Note 1 - Remittance basis users are taxable on the profits from overseas property income as relevant foreign income. They are taxable on the amount of property letting income (net of expenses) that they bring into the UK.

The ‘profits’ of the overseas property business are determined in the usual way, and any taxable remittances will be ‘restricted’ to the amount of profit. This may be relevant if, for example, prior year losses are used to reduce taxable profit, or if capital allowances reduce profit as the ‘property income’ that could be remitted could exceed the profit.

Note 2 - Individuals can usually deduct 10% of the value of their overseas pensions, annuities and social security pensions, so that only 90% of the amount is taxable in the UK, under ITEPA03/s575 - refer to EIM74500.

However this does not apply to foreign pensions taxed as relevant foreign income. This means that remittance basis users are taxable on the full amount of pension when ‘remitted’ to the UK. Refer to RDRM33020 for the meaning of ‘remitted to the UK’.