‘Non-domiciled’ residents – What should you know if I am Resident in UK for tax purposes?
Your domicile’s usually the country your father considered his permanent home when you were born. It may have changed if you moved abroad and you don’t intend to return. how your residence status and your domicile status affect the payment of tax in the UK on foreign income or foreign chargeable gains from the 6 April 2013 onwards.
As a general guideline you are considered a Resident for UK tax purposes if you meet any one of the below tests;
- Step 1: Consider whether you spent 183 days* in the UK in that tax year. If you did, you will be resident in the UK. If not:
- Step 2: Consider the 3 automatic overseas tests. If you meet 1 of these, you are not UK resident. If you did not:
- Step 3: Consider if you meet the second and third UK tests. If you meet 1 of these, you are UK resident. If you did not:
- Step 4: Consider the sufficient ties test. If you meet this you are UK resident, if you do not meet this, you are not UK resident.
When you’re UK resident you’re normally taxed on the arising basis of taxation. This means that all your worldwide income and gains will be taxable in the UK. Therefore, even if your foreign income and gains have already been taxed in another country they will still be taxable in the UK and you must declare all your foreign income and gains on your tax return. In many cases, relief is given in the UK for foreign tax paid on foreign income and gains under the provisions of the relevant Double Taxation Agreements (DTAs) or via unilateral relief. Your Accountant or tax consultant should guide you through this in detail depending on your circumstances.
Your Domiciled Status does not affect your Income in UK but will give you the option to choose the way you pay tax on your foreign income. The two options are;
- Arising Basis where you pay tax when the income arises even if you do not remit it to UK.
- Remittance Basis where you only pay tax when the income is remitted to UK.
There are also different reliefs and criteria that will apply based on the type of income.
If you choose to be taxed on arising basis you will be taxed as any UK resident and you will be entitled to your personal allowance. You can claim any tax paid on your foreign income provided its covered under the relevant DTA or via unilateral relief.
Who can use the remittance basis?
To use the remittance basis for your foreign income and foreign gains you must be UK resident and be either:
- not domiciled in the UK
- for years up to 2012 to 2013, not ordinarily resident in the UK – in this case:
- you can use the remittance basis for foreign income
- you can’t use it for foreign gains unless you’re also not domiciled in the UK
You can’t use the remittance basis if you’re deemed domiciled under the changes brought in from 6 April 2017.
How does the remittance basis work?
If you are eligible and choose to use the remittance basis, you will be liable to UK tax on:
- All your UK income and gains as they arise or accrue each year
- your foreign income and gains when you bring (remit) them to the UK, including any property which derives from those income and gains
There are some exemptions to what is considered remittance and depends on your individual circumstances so please always speak to your accountant.
Even if you’re eligible to use the remittance basis you do not have to use it. You can use the arising basis and pay UK tax on your worldwide income and gains. If you choose to use the remittance basis, you will not normally qualify for:
- personal allowances and reliefs for Income Tax
- the annual exempt amount for Capital Gains Tax
How do I claim the remittance basis?
You can claim to be taxed on the remittance basis by completing a Self-Assessment tax return including the Residence, Remittance Basis supplementary pages (SA 109). You will only declare the income you remitted to UK and pay tax on this amount as per any other resident in UK.
Exemption for small amounts of foreign income
If you’re employed in the UK, are not domiciled here and have only small amounts of foreign income you can benefit from an exemption on amounts you remit to the UK. To qualify for the exemption, you must meet all of the following conditions for a tax year:
- you’re UK resident
- you’re not domiciled in the UK
- you’re employed in the UK
- you’re a basic rate taxpayer (based on your worldwide income and gains)
- your income from overseas employment for the tax year is less than £10,000
- your overseas bank interest for the tax year is less than £100
- all your overseas employment income and interest is subject to foreign tax
- you’ve no other overseas income and gains
- you’re not otherwise required to complete the Self-Assessment tax return
If you meet all these conditions you will be automatically taxed on the arising basis for that year and you:
- won’t be liable to UK tax on your foreign income, either when it arises or when it is brought to the UK
- don’t need to complete the Self-Assessment tax return in respect of your foreign income for that tax year
- don’t need to claim the remittance basis
What is Remittance Basis Charge?
If you decide to claim the remittance basis and are a long-term UK resident, you may have to pay the Remittance Basis Charge (RBC). The RBC is tax on a part of the foreign income or gains that you leave outside the UK and nominate. It is payable in addition to any UK tax you’ve to pay on either:
- UK income or gains
- foreign income and/or gains remitted to the UK
How much RBC do I need to pay?
From 6 April 2017 there are 2 levels of charge:
- £30,000 if you’ve been UK resident in at least 7 out of the preceding 9 UK tax years
- £60,000 if you’ve been UK resident in at least 12 out of the preceding 14 UK tax years
You will pay only one of these charges in any one tax year. the £ 90,000 charge no longer applies from 6th April 2017 for Non-Domiciled residents been in UK for 15 years as you will now be deemed domiciled and be taxed on arising basis.
There are also other reliefs and exemptions you might be eligible for. Some of them are Business Investment Relief, Sales of exempt assets and other specific reliefs under the Double taxation agreement in force. As part of preparing your tax returns, your Accountant should be able to look at all these options and guide you.
At Outsourced ACC we offer an all inclusive annual fee which covers you and ensure you correctly prepare your tax returns taking advantage of all the reliefs available. Give us a ring today and see how we can help you.