Remitting £30,000 free of income tax
The Revenue have confirmed that transfers of overseas income back to the UK to pay for the £30,000 tax charge won't be taxable.
This is a welcome clarification and is essentially an application of the 'no tax on tax' principle.
This means that non UK domiciliaries can transfer £30,000 back to the UK without being subject to UK tax on this, as well as having to then pay the £30,000 tax charge.
If they would have been taxed on the transfer of funds to pay the £30,000 this means that they would have actually have needed to have remitted £50,000 (if they were a higher rate taxpayer) to then pay £30,000 to the Revenue.
Does this mean that the first £30,000 of any remittances will be effectively excluded from being classed as a remittance?
Well unfortunately this does not appear to be the case. It looks as though the Revenue will only accept that the £30,000 is transferred back to the UK to settle the £30,000 additional tax charge where it is either:
- Transferred electronically to the Revenue, or
- Drawn on a foreign cheque for them
Therefore if you transfer the £30,000 into your UK bank account before transferred it to the Revenue it will be taxed as part of your remitted income. Therefore if you're planning on using overseas income to settle the additional tax charge it makes sense to use one of the methods above.
The fact that the £30,000 is not taxed as a remittance is also an important factor to take account of when assessing whether you should claim the remittance basis or not.
Example
If a non dom (resident for more than 7 years) higher rate taxpayer has overseas income of £100,000 and they remit £50,000 to the UK, they would assess their position as either:
Therefore in this case they'd usually opt for the arising basis.
However, if the facts were the same but the £50,000 remittance was £30,000 transferred directly to pay the Revenue charge and just £20,000 to the non doms bank, the position would be either:
In this case the unremitted income is £80,000 (ie total income is £100,000 and only £20,000 is classed as remitted). This result therefore ties in with the often quoted breakeven point of around £80,500 of unremitted income. Above this you're better off with the remittance basis. This is on the basis of the position being either:
For example, if the total income was £200,000 with £30,000 sent directly to the taxman and £20,000 spent in the UK, based on facts as above the options would be:
The key point though is that making the payment of the £30,000 direct to the Revenue can impact on both the amount of tax payable as well as the decision as to whether to claim the arising basis or the remittance basis of tax.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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