A non domiciled person can take advantage of the Remittance Basis. This allows foreign source income and gains to be earned abroad yet only taxed in the UK to the extent that they are remitted here. However, Mark Davies & Associates can recommend remittance planning, to ensure that sources are segregated so that funds least liable to tax are remitted solely or at least first, before more heavily taxed remittances.
Money held in bank accounts can originate from a mixture of sources such as salaries, dividends or proceeds of property sales. If money is brought into the UK from such a mixed fund bank account the HMRC applies strict ordering rules and different rates of tax are applied to different sources. Foreign income or gains earned prior to arrival in the UK are known as “clean capital” and are not taxable if remitted to the UK. Gifts or inheritances are also clean capital.
Our team is highly experienced in analysing the different sources which make up any mixed funds which have been remitted. We can identify what has been remitted and how much is liable for tax. However, if such an overseas bank account is in frequent use, the administrative and professional cost of undertaking such an analysis on each transaction can often surpass the UK tax on a remittance itself. Therefore, we can offer to arrange your financial affairs prior to remitting funds in the future. We can help you separate the different strands of your income into segregated bank accounts and ensure that the least tax need be paid when you bring money into the UK. Clean capital can be remitted first followed by funds from a gains account if necessary which is taxed at 28%. Only when these resources have been exhausted need you remit foreign income taxed at the highest rate.
We find that the UK’s highly complex tax laws mean that clients frequently are unaware that using a credit card issued outside the UK to buy goods or services in the UK and using foreign income or gains to pay the credit card bill creates a taxable remittance. Using credit cards paid from clean capital accounts can make a significant difference to the amount of tax payable. Also, we have found that often UK resident non-doms pay more tax than is necessary on funds brought to the UK. Therefore, we cannot recommend highly enough the benefits of planning for remittances with segregated bank accounts long before becoming tax resident in order to be able to demonstrate the clean nature of your remittances.
Please contact us for further advice if you are likely to become UK tax resident in the future, need guidance on setting up segregated bank accounts appropriate for your specific financial circumstances or you need an analysis of mixed funds already brought to the UK.