What is the default tax regime for UK residents?
 
The starting point for the taxation of UK resident individuals is that they will be taxed in the UK on their UK income and capital gains, and their overseas (non-UK) income and gains, in the UK tax year (6 April to 5 April) when the income and gains arise to them. The overseas income/gains are subject to UK tax even if they are not brought to the UK.  Credit is available in the UK for overseas tax paid, in most cases.  This default regime is known as the ‘Arising’ or ‘Worldwide’ basis of taxation.

What is the ‘Remittance Basis’ regime?

The Remittance Basis applies to UK resident individuals who have a foreign domicile in law.  Domicile is a general law concept in the UK and refers to which country an individual most closely identifies with and considers their permanent home.  It is entirely different from the concept of ‘residence’, which refers to where individuals are spending their time day to day.  UK residents who are non-UK domiciled, for example someone who was born in Germany to parents with a German heritage, can limit their exposure to UK tax by opting to be taxed on the Remittance Basis. The choice whether to use the Remittance Basis can be made after the end of each tax year (ie you can switch between the Arising and Remittance Basis year-on-year, if beneficial).

Individuals who opt to use the Remittance Basis are taxed on their UK income and gains in the tax year when they arise, in the same way as the default regime above.  However they do not have to pay tax in the UK on their overseas income and gains, until and unless those income/gains are brought (ie ‘remitted’) to the UK or enjoyed in the UK.  

It is important to note that, once an individual has been in the UK for more than 7 years, they will have to start paying a charge to access the Remittance Basis.  The charge starts in their 8th year of residence at £30,000 per individual per tax year, and rises to £60,000 in their 13th year of residence.  Once an individual has been in the UK for more than 15 out of the last 20 tax years, they will be ‘deemed domiciled’ in the UK with effect from the start of their 16th year of residence.  Once ‘deemed domiciled’, individuals will be taxed on the ‘Arising’ basis and will no longer be able to access the Remittance Basis of taxation.

Upsides and downsides of the Remittance Basis

On the upside, the Remittance Basis is particularly beneficial for people who have large amounts of overseas income or gains which they do not need to use in the UK, or in cases where the overseas income or gains are either not taxed locally or taxed at rates lower than in the UK. It is especially advantageous in the first 7 years of UK residence when it offers a shelter from UK tax on overseas income and gains with no Remittance Basis Charge due.

There are, however, some downsides to using the Remittance Basis. Individuals who claim the Remittance Basis will lose their entitlement to their annual Income Tax personal allowance (currently £12,570) and Capital Gains Tax annual exemption (currently £12,300 but tapering down to £3,000 over the next two tax years).  If overseas income from a year when the Remittance Basis has been claimed are brought to the UK, tax will have to be paid on the remitted amounts, in addition to payment of the Remittance Basis Charge (where this applies).  Careful planning is needed to prevent inadvertent remittances of overseas income or gains. 

Changes ahead?

The current Conservative government has said that it will undertake a review of the taxation of non-domiciled individuals, and it is possible that there may be changes to the Remittance Basis, so that it would be available for a shorter period.  The opposition Labour Party has said that it would abolish the Remittance Basis if it comes into power at the next General Election (which will take place in January 2025 at the latest). However, in the meantime, the Remittance Basis remains available and offers an attractive tax regime as an option for those who come to live in the UK.

Best regards


Fiona Clark

Fiona helps international high net worth individuals with tax planning for themselves and their families, and their onshore and offshore trusts and business interests. She has a special interest in dealing with taxation issues arising on divorce.

Her fluent Spanish and highly proficient French give her linguistic and cultural insights that allow her to provide specialist support when advising Hispanic and Francophone clients.

The UK now has the longest tax code in the world. Fiona explains opportunities, obligations and pitfalls in straightforward terms and give clear and practical advice that her clients can understand.