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Tax Free Remittances

This article is aimed at non-UK domiciled taxpayers who elect to be assessed on the remittance basis. Such individuals are likely to be aware of remittances of foreign income and gains to the UK. Here we will look at what does not constitute a remittance for UK tax purposes.

Clean Capital

Taxpayers who are assessed on the remittance basis are strongly advised to have one account which holds only ‘clean capital’. Examples of clean capital include: inheritances and gifts, and income and gains which arose before the taxpayer became UK resident. The account must not be interest bearing as this would make it a mixed fund account.

Between 6 April 2017 and 5 April 2018 taxpayers will have a chance to ‘clean up’ their mixed fund bank accounts if they can identify the capital within a mixed fund account and then transfer that capital to a new pure capital account from which tax free remittances can be made.

Remittance Basis Charge

Long term residents who are subject to the remittance basis charge (RBC) may settle the charge using their foreign income or gains without this constituting a remittance, provided that the transfer is made directly to HMRC from the taxpayer’s offshore bank account which holds the foreign income or gains. Only amounts up to the taxpayer’s RBC for the year may be transferred; any excess will constitute a taxable remittance. Taxpayers are advised to keep a record of each such direct transfer to HMRC.

Business Investment Relief

If a taxpayer makes a remittance of foreign income or gains and within 45 days the funds are used to make a qualifying investment, the remittance is tax free. A qualifying investment is usually a subscription for shares/securities in an unquoted trading company or a loan to such a company. The investment may also coincidentally qualify for Enterprise Investment Scheme (EIS) relief which offers further tax breaks.

The remittance will become taxable if the shares are sold and the appropriate mitigations steps are not taken within 45 days. The appropriate mitigation steps are: taking the whole of the sale proceeds offshore or reinvesting the whole of the proceeds into another qualifying investment.

Further Advice

We offer further advice for non-UK domiciled taxpayers who are already UK resident or will be UK resident in the near future. Please contact us on info@arnoldhill.co.uk if you require any further assistance.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.