What Is the Remittance Basis and How Can It Be Used to Save Taxes in the UK?

James
Sep 9
6 min read

The remittance basis is a preferential tax regime available to UK tax residents who are not domiciled in the UK, offering significant opportunities to save on taxes. This article explains what the remittance basis is, who qualifies, its benefits and costs, and how it can be used to optimise tax liabilities. For tailored advice on leveraging the remittance basis, contact the experts at Foundry Accounting.

What Is the Remittance Basis?

The remittance basis allows UK tax residents who are non-domiciled (i.e., their permanent legal home is outside the UK) to avoid UK tax on their foreign income and gains (e.g., from overseas investments, property, or bank accounts) unless these are remitted (brought) to the UK. Under this regime:

UK-sourced income (e.g., salary or rental income earned in the UK) is taxed as usual.
Foreign income and gains are only taxed if they are brought into the UK, such as by transferring funds to a UK bank account, paying for UK expenses, or importing assets.

For example, if a non-domiciled UK tax resident earns rental income from a property abroad and keeps it in an offshore account, that income is not subject to UK tax. However, if they transfer it to a UK account to spend or invest, it becomes taxable.

This regime is particularly advantageous for foreign nationals with significant overseas income or assets, as it allows them to manage their finances to minimise UK tax liability.

Who Qualifies for the Remittance Basis?

To use the remittance basis, you must be:

A UK tax resident, as determined by HM Revenue and Customs’ (HMRC) Statutory Residence Test (SRT). The SRT evaluates factors like days spent in the UK (e.g., 183+ days automatically makes you a tax resident) and ties such as family, work, or accommodation.
Non-domiciled in the UK, meaning your permanent legal home is in another country. Domicile is typically your country of birth or your father’s domicile at birth, unless you’ve actively chosen a UK domicile.

You can assess your tax residency status using the SRT on the Foundry Accounting website in about 10 minutes with a calendar and calculator.

Key Features of the Remittance Basis

Benefits

Tax-Free Foreign Income and Gains: Foreign income (e.g., dividends, interest, or rental income) and capital gains (e.g., from selling overseas property) are exempt from UK tax if kept offshore.
Flexibility: You can choose whether to remit funds to the UK, allowing strategic financial planning to avoid tax.
Clean Capital: Assets or cash acquired before becoming a UK tax resident (known as “clean capital”) can be brought to the UK tax-free. For example, selling a foreign property before moving to the UK and holding the proceeds offshore creates clean capital that can later be remitted without tax.

Costs and Limitations

Loss of Personal Allowance: If you claim the remittance basis, you forfeit the UK’s personal allowance(estimated at £12,570 for the 2025/26 tax year, subject to confirmation), which is the tax-free portion of income available to most UK residents.
Remittance Basis Charge (RBC): For long-term UK tax residents, the remittance basis is not free:
£30,000 annually if you’ve been a UK tax resident for at least 7 of the previous 9 tax years.
- £60,000 annually if you’ve been a UK tax resident for at least 12 of the previous 14 tax years.
- The RBC is treated as a tax payment, allowing you to remit an equivalent amount of foreign income or gains to the UK without additional tax. For example, paying the £30,000 RBC allows you to bring £30,000 of foreign income to the UK tax-free.
Loss of Remittance Basis: After being a UK tax resident for 15 of the previous 20 tax years, you become deemed domiciled for tax purposes. This means you lose access to the remittance basis for inheritance tax (IHT) and, in some cases, income and capital gains tax, making your worldwide income and gains taxable in the UK.

Comparing Tax Options

In some cases, the remittance basis may not be the most cost-effective option, especially if your UK income is low or the RBC outweighs the tax on foreign income. For example:

If your foreign income is modest, paying UK tax on it (without claiming the remittance basis) and retaining the personal allowance may result in lower overall tax.
A tax professional can compare the tax liability with and without the remittance basis to determine the best approach.

How to Optimise Taxation Using the Remittance Basis

The remittance basis offers several strategies to save on taxes, particularly for foreign nationals with significant overseas income or assets. Here are practical steps to maximise its benefits:

1. Create Clean Capital Before UK Tax Residency:

Sell foreign assets (e.g., property, investments, or shares) before becoming a UK tax resident to generate clean capital. For example, selling an overseas home and depositing the proceeds in an offshore account ensures those funds can be brought to the UK tax-free later.
Ensure these transactions occur before you meet the SRT criteria for tax residency (e.g., before spending 183 days in the UK).

2. Keep Foreign Income and Gains Offshore:

Maintain foreign income (e.g., rental income, dividends, or interest) and capital gains in offshore bank accounts or investments to avoid UK tax.
Avoid remitting these funds to the UK, such as by transferring them to a UK bank account, paying for UK expenses, or bringing physical assets (e.g., art or jewellery) into the UK.

3. Leverage Split-Year Treatment:

If you move to the UK during a tax year, you may qualify for split-year treatment, where you are taxed as a UK resident only from the date of arrival or when you establish a UK home. This can reduce your tax liability in the first year, allowing you to defer remittances until you’re ready.

4. Plan Around the Remittance Basis Charge:

For long-term residents (7+ or 12+ years), weigh the cost of the RBC against the tax savings from keeping foreign income offshore. If the RBC exceeds the tax on your foreign income, consider opting out of the remittance basis for that year.
Use the RBC strategically to remit specific amounts of foreign income tax-free (e.g., remitting £30,000 after paying the £30,000 RBC).

5. Time Your UK Residency:

Manage the timing of your UK entry to avoid triggering tax residency prematurely. For example, limit days spent in the UK to stay below the SRT thresholds (e.g., 46 days for those with no prior UK tax residency).
Plan major financial decisions (e.g., selling assets or remitting funds) around your residency status to minimise tax exposure.

6. Use Double Taxation Agreements:

If your foreign income is taxed in another country, check if a double taxation agreement exists between the UK and that country. These agreements can provide tax credits or exemptions to avoid paying tax twice on the same income, complementing the remittance basis.

Why Work with Foundry Accounting?

Navigating the remittance basis and UK tax residency rules can be complex, especially given the nuances of HMRC regulations and the potential for costly mistakes. The specialists at Foundry Accounting have extensive experience in tax planning for foreign nationals, offering tailored strategies to reduce tax liabilities legally and effectively. Our approach includes:

Personalised Assessment: We analyse your financial situation, residency status, and foreign assets to recommend the most effective tax strategy, including whether the remittance basis is suitable.
Proactive Planning: We help you restructure assets (e.g., selling foreign property to create clean capital) before becoming a UK tax resident, ensuring compliance and tax efficiency.
Long-Term Strategy: For long-term residents, we advise on managing the Remittance Basis Charge, leveraging double taxation agreements, and preparing for changes in tax status.
Compliance Support: We ensure you meet HMRC deadlines for tax returns (typically 31 January for online submissions) and avoid penalties for late or incorrect filings.

By consulting with our team from the outset, you can take advantage of all tax-saving opportunities embedded in UK legislation. For example, we can guide you through asset restructuring, the use of the remittance basis, and strategies to manage foreign income, ensuring you optimise your tax position.

For expert guidance on using the remittance basis and navigating UK tax residency, contact Foundry Accounting. Our individualised approach ensures your tax strategy aligns with your personal and financial goals, helping you save on taxes and stay compliant with HMRC.