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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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HM Revenue & Customs
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Remittance basis: amounts remitted: remittances of 'nominated' income or gains: order of remittances

Ordering rules apply if an individual remits any of his nominated income or gains in a tax year when there is other foreign income or gains from tax years for which the remittance basis was used that have not been remitted. (ITA07/s809J).

Changes in legislation allow individuals from 6 April 2012 to remit up to £10 of their nominated foreign income or gains without having to apply the steps outlined below (refer to RDRM35115).

If this occurs, the following steps are taken to determine what is treated as remitted in that tax year:

Step 1

The tax year under consideration is the ‘relevant tax year’ (refer to Note 1).

For the ‘relevant tax year’, find the amount of the individual’s

  • nominated income and gains, and
  • remittance basis income and gains

that have actually been remitted to the UK in that relevant tax year.

This is known as the relevant amount.

The individual’s nominated income or gains are the total income or chargeable gains that the individual has nominated under ITA07/s809C for the ‘relevant tax year’, or any earlier tax year.

The individual’s remittance basis income and gains are the individual’s total foreign income or chargeable gains for the ‘relevant tax year’, or any earlier tax year, in which the individual used the remittance basis under s809B, s809D or s809E, but excluding any income or gains from those years that:

  • are ‘nominated’ income or gains, or
  • were actually remitted to the UK before the beginning of the relevant tax year,

Foreign income or gains from tax years ending before and up to 5 April 2008, or tax years commencing after 6 April 2008 in which the individual did not use the remittance basis are effectively ignored in this process.

Note 1 - The first time ITA07/s809J applies the ‘relevant year’ considered is the year in which the nominated income or gains are remitted. In subsequent tax years it is the current tax year under consideration, until all of the taxpayer’s foreign income or chargeable gains from tax years in which the remittance basis is used under s809B, s809D or s809E have been remitted.

Step 2

Find the total amount of the individual’s remittance basis income and gains for the relevant tax year within each of the following categories of income and gains identified as paragraphs (a) to (h).

Then go to Step 3

  1. Relevant foreign earnings (but not if subject to a foreign tax - refer to ‘e’)
  2. Foreign specific employment income (but not if subject to a foreign tax - refer to ‘f’)
  3. Relevant foreign income (but not if subject to a foreign tax - refer to ‘g’)
  4. Foreign chargeable gains (but not if subject to a foreign tax - refer to ‘h’)
  5. Relevant foreign earnings subject to a foreign tax
  6. Foreign specific employment income subject to a foreign tax
  7. Relevant foreign income subject to a foreign tax
  8. Foreign chargeable gains subject to a foreign tax

If the individual has no remittance basis income or gains in the ‘relevant tax year’, perhaps because it is a tax year in which they did not use the remittance basis, then go to Step 6.

Note 2 - The ordering and identification rules mean that all the income and capital gains of a later tax year will be treated as remitted before any of the income and capital gains of an earlier year.

Note 3 - Only non-domiciled remittance basis users can pay tax on the remittance basis in respect of foreign gains (ITA07/s809Z7(2)(d)).

Note 4 - If money brought into the UK is capital (also refer to RDRM35200: Mixed funds) then the s809J ordering rules will not apply. For these rules to operate there first has to be a remittance within ITA07/s809L that is a remittance of the individual’s income or gains.

Step 3

Identify the earliest of paragraphs (a) to (h) above for which the amount determined in Step 2 is not nil.

If the amount of foreign income/gains in that ‘paragraph’ is more than the ‘relevant amount’ (the amount identified in Step 1) then treat the individual as having remitted the relevant proportion of each kind of income or gains within that paragraph. It is not then necessary to consider Step 4-6.

If the amount of foreign income or gains in that ‘paragraph’ is less than the ’relevant amount’ treat the individual as having remitted the income or gains within that paragraph. Then go to Step 4.

Note 5 - The relevant amount is simply identified as being from within one of the paragraphs (a) to (h) but there is no further identification as to its exact source or country of origin.

Step 4

Reduce the ‘relevant amount’ by the amount taken into account in Step 3.

Then go to Step 5.

Step 5

If the relevant amount is nil, there is no need to consider steps 5 or 6.

If the relevant amount is not nil go back and repeat Step 3. Take the reference to the first of paragraphs (a) to (h) as a reference to the earliest paragraph not previously taken into account under Step 3.

Step 6

If after reducing the relevant amount by income or gains within all the paragraphs (a) to (h) for the relevant year the amount is not nil start again at Step 2 for the next appropriate year.

This time, allocate income and gains to the categories in paragraphs (a) to (h), from the previous tax year as long as this is an ‘appropriate tax year’ (see below).

Step 2 (on repeat)

If repeating Step 2, find the total amount of the individual’s remittance basis income and gains for the appropriate tax year, and categorise into the paragraph types (a) to (h).

The appropriate tax year is

  • the earliest tax year previous to the tax year you have just been considering, as long as it is a tax year in which
  • the individual used the remittance basis under ITA07/s809B, s809D or S809E in that year

Then go to Step 3 and so on.

This ‘deeming’ of the nature of remittances continues to have effect for each subsequent tax year, so careful records should be kept of what is actually remitted, and what is treated as having been remitted instead. These records will be required for as long as the individual has un-remitted ‘remittance basis income and gains’.