Remittance Basis: Remittance Basis up to 6 April 2008: Previous to 6 April 2008: Background
This chapter of the guidance provides an outline of the remittance basis rules that existed before 6 April 2008. You should refer to the other chapters for guidance on the operation of the remittance basis, remittance basis claims and when looking at remittances that have been made on or after 6 April 2008.
The remittance basis is an ‘alternative’ basis of taxation which allows qualifying UK residents to pay tax on their foreign income and/or gains in the tax year in which they are remitted to the UK.
The remittance basis can be viewed as sitting ‘on top’ of the relevant rules for the taxation of employment income, savings income and capital gains. The same underlying legislation applies, whether it is ICTA 1988, ITEPA 2003, ITTOIA 2005, ITA 2007 or TCGA 1992. The remittance basis simply means that foreign income or gains are not taxed when they arise or accrue, but instead when they are remitted to the UK; the effect is to ‘delay’ the charge to UK tax, sometimes indefinitely.
Using the Remittance Basis for tax years up to and including 2007-08
Before 6 April 2008 the legislation dealing with foreign income and foreign gains that were taxed on the remittance basis applied in different ways:
- Foreign Income
UK residents who are Not Ordinarily Resident (NOR) or Not Domiciled (ND) are able to use the remittance basis for their foreign income.
The remittance basis applied automatically to the non-UK earnings of NOR or ND employees (ITEPA03/s22 and s26).
Foreign income other than earnings (known previously as Case IV or Case V income and now ‘relevant foreign income’) was taxable on the remittance basis only if the individual made a claim to be taxed on the remittance basis as part of their self-assessment return (ITTOIA05/s831).
- Foreign Gains
The remittance basis applied automatically to gains that were made on assets situated outside the UK (TCGA92/s12). Only UK residents who are ND qualify to pay tax on the remittance basis.
The qualifying conditions to use the remittance basis did not change on 6 April 2008.
With a few minor exceptions (for example remittance basis users do not get the deduction of one-tenth for foreign pensions), the remittance basis does not generally affect the amount of foreign income or gains that is taxable. In general terms, an identified amount of remitted income and/or chargeable gains is taxed at the rates in force in the year in which the amount is remitted and not the rates that applied when the amount arose or accrued.
The remittance basis applies only to the foreign income or gains of UK residents.
This means that foreign income and gains that arose or accrued before an individual became resident in the UK that are later remitted to the UK are not usually taxable - unless a special provision applies, for example the ‘temporary non-residents’ rule for capital gains tax (TCGA92/s10A).
Refer to the Capital Gains Manual (particularly CG25300+) for information about the effects of domicile and the disposal by non-domiciled individuals of assets situated abroad.
Refer to the Employment Income Manual (particularly EIM40301+) for information about the treatment of earnings charged on the remittance basis.