Why you should use the remittance basis if your foreign income or gain is between £2,000 and £10,104

If you have between £2,000 and £10,104 in overseas income and capital gains you should consider keeping £1,999 overseas where it will be tax free. This applies no matter how long you've lived in the UK. That leaves income of up to £8,105. This should be brought back into the UK where you will pay tax on it. What's so significant about £8,105? That's the amount of the income tax personal allowance which you will lose for the 2012/13 tax year if you decide to keep your money offshore and claim the remittance basis. If your remaining overseas income is less than £8,105, it would probably be unwise to claim the remittance basis. You will end up paying more tax than otherwise. Example Richard is a non-domiciled higher-rate taxpayer and earns £5,000 of interest from his overseas bank account. Let's say he keeps £1,999 overseas and remits the rest of his interest to the UK. His tax will be: £5,000 - £1,999 = £3,001 x 40% tax = £1,200 Let's say Richard instead claims the remittance basis. His £5,000 can then be kept tax free offshore. But at the very least he will lose his income tax personal allowance which means he'll pay an extra £3,242 tax on his UK income: £8,105 x 40% tax = £3,242 So by claiming the remittance basis he ends up paying over twice as much tax. If you have a mixture of income and capital gains, you are possibly better off remitting your gains because these will be covered by your annual capital gains tax exemption or, at the very worst, taxed at 28%, provided you keeping less than £2,000 of income and gains abroad. Summary No matter how long you've lived in the UK, if your overseas income is between £2,000 and £10,104 you should: • Keep £1,999 overseas where it is tax free • Remit the rest to the UK and pay tax on it This will preserve your income tax personal allowance. It's probably better to remit capital gains instead of income.