ARISING BASIS VS REMITTANCE BASIS

by Thomas Cheung, in ,

IMPORTANT – As of 6th April 2025, the concept of domicile as a tax status has been abolished and replaced with The New FIG Regime.  The remittance basis discussed below will only apply to foreign income and gains made prior to this date.

The old rules for determining UK taxation of foreign individuals, was based on two concepts; residence and domicile.

Residence – can be defined as the country where a person is currently living. In the UK, residence is determined by the statutory residence test and is loosely based on the number of days a person has spent in the UK in the current tax year.

Domicile – is where you would call your permanent home, somewhere you intend to return to if you are away. Under UK law, a person’s domicile will follow that of the person on whom they are legally dependent until the age of 16, at which point they could acquire a new domicile by settling in another country

 

What is the remittance basis?

A UK-domicile, who is resident in the UK, will be taxed on their worldwide income and gains. A non-UK domicile, who was resident in the UK prior to April 2025, had the option of claiming the Remittance Basis of Taxation, whereby they were not required to report their foreign income and gains on their UK tax return on the basis that this has remained outside of the UK. Alternatively, they can report their worldwide income on the Arising Basis.

 

Does this mean claiming the Remittance Basis is better?

Not necessarily: UK residents and European Economic Area (EEA) citizens are entitled to a personal allowance of tax-free income each year which must be forfeited to claim the Remittance Basis. Similarly, there is an annual exemption that is a tax-free allowance for any potential capital gains which is also lost.

It is important to note that the personal allowance is reduced by £1 for every £2 that you earn over £100,000. So, for certain individuals, the personal allowance had already been lost and there would seem to be limited consequences for claiming the remittance basis.

Furthermore, depending on how long the individual has been UK resident means they may have to pay a fee to enable them to claim the remittance basis. This is known as a Remittance Basis Charge (RBC) and is an additional payment on top of the current tax liability for the year. The relevant RBC charge must be paid each year the remittance basis is claimed. Once an individual has been UK resident for at least –

  • 7 out of the previous 9 tax years they must pay a £30,000 RBC.
  • 12 out the previous 14 tax years they must pay a £60,000 RBC.
  • 15 out the previous 20 tax years they will be deemed UK domicile. (Please see here for more information on domicile status)

The remittance basis claim must be made each year via the Self-Assessment tax return. The option to claim the remittance basis or report your worldwide income was available each year and a previous claim did not affect your options in the following year. However, where an individual’s unremitted foreign income was less than £2,000, the automatic remittance basis could apply without the need to make a claim. In this case the remittance basis was claimed without sacrificing the personal allowance (subject to tapering) and annual exemption.

It was not always obvious whether claiming the remittance basis was better which meant there were situations where tax computations for both the arising and remittance basis were needed to be carried out to establish which was the most tax efficient.

 

What if I want to remit foreign income to the UK?

Claiming the remittance basis restricted individuals from transferring income to the UK. Income that had not previously been reported would be taxable on remittance to the UK and can be subject to a higher tax rate. For example, an unreported dividend from an earlier year that is remitted to the UK will be subject to income tax rates (20%, 40% & 45%) rather than the favourable dividend tax rates (8.75%, 33.75% & 39.35%).

IMPORTANT: the Temporary Repatriation Facility (TRF) which was also introduced in April 2025, enables individuals to remit unreported foreign income from remittance basis tax years at a reduced rate for a limited period. More info here. 

 

Please note that this article should not be taken as tax advice. The information provided about may not be relevant due to unknown facts and circumstances. If you have any questions on the above, please do not hesitate to contact us directly.