Non-doms can choose whether to pay tax either on all income and gains wherever they arise (known as the worldwide basis), or on the alternative basis (where UK sources of income are taxed as they arise and foreign income and gains are taxed but only to the extent that they are remitted to the UK). This alternative option is known as the remittance basis.
If non-doms claim the remittance basis, they lose their tax free allowances for income and capital gains tax and pay a higher rate on remitted dividends, but there are no other charges for the first six years. However, once the non-dom has been UK tax resident in 7 out of the last 9 tax years, the remittance basis charge or “RBC” of £30,000 becomes payable. Moreover, once tax resident for 12 tax years out of 14, the charge rises to £60,000 and once resident in 17 out of 20 tax years the cost rises again to £90,000.
There are complex rules used to identify what constitutes a remittance and on determining what has been remitted. Mark Davies & Associates advise frequently on whether it will be beneficial for a client to pay the charge and be exempted from tax on foreign income and gains, or to pay tax on the worldwide basis. With careful planning, foreign income and gains can be structured to grow offshore, tax free.