Figure 1 relates to the taxation of overseas investment income and trading income only. It has already been recognised that UK source income is always subject to UK IT regardless of the individual’s tax status. Overseas employment income is considered below, following Example 1.
Note the following:
- Where an individual is not UK resident, overseas income is not subject to UK IT. There is no need to consider the person’s domicile status or the remittance basis. This is true regardless of whether or not the income is brought into the UK.
- Where an individual is UK resident, overseas income is subject to UK IT. The manner in which it is taxed depends on the individual’s domicile status. The remittance basis (see below) is available if the individual is not domiciled in the UK.
The remittance basis
A UK resident individual who is not domiciled in the UK may choose to be taxed on overseas income and capital gains on the remittance basis.
Under the remittance basis, amounts are subject to UK tax only if brought into the UK. For example, an individual with overseas bank interest would not be liable to UK IT on that interest if he could show that it has not been brought into the UK. This could be achieved by, for example, showing that it has not been removed from the overseas bank account.
A remittance is regarded as having been made where money or other property derived from offshore income/gains is brought into the UK.
Individuals who qualify for the remittance basis can choose each tax year whether or not to pay tax on the remittance basis.
Figure 2 illustrates the three stages of the remittance basis. It is useful to think of the rules in stages as it avoids confusion and enables the issues to be addressed in the correct order.
- It is first necessary to consider the status of the individual in order to determine whether or not the overseas income is subject to UK tax.
- The second issue is whether the remittance basis is available automatically or needs to be claimed.
- Finally, if the remittance basis is available, the need to pay the remittance basis charge (RBC) must be considered.
Figure 2 – The remittance basis