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"It's as easy as R, B, C......" Or is it?

The first 31st January tax filing deadline looms over us. It is also the first time that some remittance basis users will be paying the higher £50,000 remittance basis charge (RBC) in order to access the remittance basis of taxation.

Individuals who are resident in the UK but who are not domiciled here can elect to be taxed on the highly advantageous remittance basis of taxation. This means that an individual is taxed on non-UK income and gains, only to the extent that such income or gains are brought to or otherwise enjoyed in the UK.

How to access the remittance basis

In order to access the remittance basis, an election must be made in the taxpayer’s self-assessment tax return. If an election is not made, the default position is that the taxpayer is taxed on all of his worldwide income and gains, regardless of whether these are brought into or enjoyed in the UK.

For the first seven years of residence in the UK, the remittance basis can be accessed free of charge. Once an individual has been resident in the UK for at least seven of the preceding nine tax years he will need to pay the RBC in order to benefit from the remittance basis of taxation. The charge for this category of taxpayer is £30,000 per annum.

The increased charge

An increased charge came into effect from 6 April 2012 (i.e. for the 2012/13 tax return which must be filed by 31 January 2014 – this Friday). The increased charge is £50,000 and applies to those individuals wishing to access the remittance basis of taxation who have been resident in the UK for twelve years or more.

Care should be exercised when paying the RBC to ensure that taxable funds are not remitted to the UK in order to pay the charge; thus triggering a tax on tax. The standard practice is for the taxpayer to transfer the funds to pay the charge from an offshore account directly to an offshore account of HMRC. There are complex rules regarding the need for the taxpayer to nominate offshore income and/or gains in respect of which the charge is paid.

The RBC election

The election for the remittance basis of taxation can be made on an annual basis and some UK resident non-UK domiciled individuals may decide that they are financially better off in some years being taxed on their worldwide income and gains than being taxed on only their UK source and remitted income and gains. Others may prefer to pay the remittance basis charge rather than having to disclose foreign sources and meet the cost of professional advice on their tax liability in respect of foreign income and gains.

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