Is this relevant to you?
· Are you UK tax resident?
· Are you Non-UK Domiciled?
· Do you have non-UK bank accounts and/or non-UK sources of Income?
· Do you elect to be taxed on a remittance basis?
If you have answered Yes to all of the above questions, this article is relevant to you and should keep reading!
Individuals who are regarded as resident in the UK are initially taxable on their worldwide income and capital gains. The remittance basis of taxation is available to individuals who are regarded as not domiciled in the UK. Under the remittance basis, an individual is taxable on their UK source income and capital gains as they arise, but is only taxable on their overseas income and capital gains to the extent that the funds are remitted to the UK.
There are certain tax consequences for an individual claiming the remittance basis, including the potential loss of the personal allowance and an annual charge for longer term residents, and therefore it must be determined whether the claim would be worthwhile, prior to it being made. If an individual has unremitted overseas income and gains of less than £2,000 in the tax year, the remittance basis is applied automatically and a claim is not required.
If funds from outside of the UK are required in the UK, by an individual who has claimed the remittance basis in respect of those funds, there will generally be a tax charge at the time of the remittance. There are specific rules in place which deem the type of funds which are remitted from each overseas source if that source contains more than one type of income and/or capital (i.e. a mixed fund), which will generally mean that the proportion taxable at the highest rate is taxable first.
Opportunity to separate mixed funds
Mixed funds arise when the same fund (e.g., a bank account) receives more than one of the following: untaxed unremitted income, capital gains or clean non-taxable funds. A mixed fund may arise from one transaction or a series of many such transactions and may cover one year or many years. Currently, a taxpayer cannot choose to remit specific funds from a mixed fund but instead there are strict rules for ordering what is regarded as remitted.
With the rules introduced from 6 April 2017, individuals have an opportunity to separate their mixed funds. This helps to ensure that any income remitted to the UK is not automatically treated by HMRC as taxable at the highest UK tax rates. This opportunity to separate mixed funds is only available up to 5 April 2019.
If you would like to undertake a review of your foreign accounts in order to minimise any potential UK tax exposures or if you are not sure whether you should separate your mixed funds or whether these rules are relevant to you, please get in touch. Our team comprises of specialists with many years of experience in the field of UK and international taxation.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.