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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Accessing the remittance basis: Claiming the remittance basis: Calculation of income tax liability - exemption for non-domiciles with small amounts of foreign employment income

Individuals employed in the UK are usually required to file a Self Assessment tax return if they have also received income from overseas employment in the same tax year. However in many cases there is little or no tax to pay in the UK because the overseas employment income has already been subject to tax in the other country.

From 6 April 2008 there is no obligation for individuals who are resident but not domiciled in the UK for a tax year to file a return as long as the individual is not claiming the remittance basis under ITA07/s809B and meets all of the following conditions (ITA07/s828A).

Condition A The individual has income from a UK-based employment.
Condition B If the individual has relevant foreign earnings RDRM31120, these must amount to £10,000 or less. These earnings must be subject to a Foreign tax.
Condition C If the individual has any foreign bank interest the amount of the interest is £100 or less. This interest must be subject to a foreign tax.
Condition D The individual has no other foreign income and gains for the tax year.
Condition E The individual is liable to UK income tax only at the basic rate (or starting rate for savings income). In determining the rate of tax that applies, the effects of this exemption are ignored.
Condition F The individual does not make a return under TMA70/s8 for the tax year.

If all of these conditions apply, the individual receives an exemption from liability to income tax, in so far as that liability is attributable to the individual’s foreign income or gains for the tax year (termed the ‘relevant amount’). Broadly, the relevant amount is deducted from what would otherwise be the amount of the individual’s liability to income tax for the tax year under ITA07/s23.

This means that the individual is automatically taxed on the Arising Basis for that tax year, and does not have to complete a return.

Most individuals who fulfil Conditions A to F are expected to use the Arising Basis and not complete a return. However there may be a small number of non-domiciled individuals who fulfil these conditions but who wish to use the remittance basis in respect of their foreign income and gains and are within the ‘below £2,000 threshold’ user group (ITA07/s809D). Such individuals will have to complete a return in order to claim the remittance basis under s809D; this will of course mean that Condition F of ITA07/s828A is no longer met, refer to RDRM32110 Un-remitted foreign income and gains below £2,000 threshold.

Refer to RDRM37040 Appendix 4 for a diagrammatic representation of the interaction between ITA07/s828A and ITA07/s809D.

Subject to Foreign Tax

Although ‘subject to a foreign tax’ might in some circumstances mean that the individual has actually paid some tax on the foreign income to a foreign tax authority, actual payment is not a necessary requirement to take advantage of this exemption.

For example, given the levels of foreign income involved there might be nothing due to be paid on part or all of the income, as a result perhaps of a foreign countries’ own personal allowances systems, or similar tax provisions which are akin to such allowances, such as a tax rate band of 0 per cent. Such income would still be considered to be ‘subject to a foreign tax’ in the context of this exemption.