Remittance basis ― setting up foreign accounts

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Remittance basis ― setting up foreign accounts
  • Reasons for setting up foreign accounts
  • Clean up of mixed funds
  • Pre-entry account
  • Accounts for foreign capital gains and losses
  • Interest accounts
  • Income that has suffered foreign tax
  • Income or gains that have been nominated
  • Uncertainty about paying the charge
  • Keeping records

Individuals using the remittance basis of taxation are advised to set up foreign accounts correctly, and use them carefully. This note explains why this should be done and suggests which accounts may be useful.

To understand the issues involved, you should first read the Remittance basis ― nomination, charge and payment and the Remittance basis ― mixed funds guidance notes. An outline of the remittance basis can be found at the Remittance basis ― overview guidance note.

This guidance note discusses the legislation that applies from 6 April 2008, and deals only briefly with transitional rules. For the earlier rules, see RDRM36000–RDRM36470.

For commentary on the earlier rules, please click here for the pdf extract from Tolley’s Income Tax 2012/13 below:

Click here to view pdf

Reasons for setting up foreign accounts

Setting up foreign accounts is important because:

  • generally speaking, foreign income and gains are taxable when remitted
  • it is easy accidentally to remit nominated income and gains, see the Remittance basis ― nomination, charge and payment guidance note. The consequences of such remittances are severe, often resulting in tax charges which do not match the individual’s actual remittances, and preventing the individual being able to access the tax paid on the nominated income / gains
  • remittances from accounts containing a mixture of different categories of income, gains and / or capital are subject to the mixed fund rules. As a result, the income / gains within the account which give rise to the heaviest tax charges are deemed to be remitted first, see the Remittance basis ― mixed funds guidance note for more details
  • no tax is paid on remittances of capital, but the individual must be able to show the provenance of the sums

More on Overseas aspects: