Basics
Non-domiciled UK tax residents do not pay UK income tax on their foreign income and capital gains if both the following apply:
- These are less than £2,000 in the tax year; and
- not brought into the UK, for example by transferring them to a UK bank account
Detailed guidance
UK Tax residents1 can use remittance basis2without being liable to the remittance basis charge3 nor losing their personal allowance or annual exemption limit for capital gains, if they are below the £2k threshold. See RDRM32260
Exchange rates
To check whether foreign income is below £2k threshold, un-remitted foreign income is converted to pounds sterling at the rate of exchange on the last day of the tax year.
As per HMRC guidance, if threshold is breached and you need to include the income in the tax return, exchange rate that needs to be used is of the day that the income arose overseas.
In practice it may not be reasonable to calculate in this way, in those cases average rates can be used. See foreign notes SA106.
Note in case remittance basis is claimed and income is remitted in a later year, exchange rate of the date of remittance should be used.
This will mean that the same foreign income may be converted at different exchange rates, depending on the reason for the conversion. See RDRM31190
Self-Assessment Tax return
Individuals using the remittance basis by virtue of s809D do not have to file a self-assessment return in order to access the remittance basis. However, if an SA return has been issued or requested then they should include details of their use of the remittance basis in the return when they file it by including this in the additional information box, even if the remittance basis is accessed by using s809D. see RDRM32105
Split tax years
Income of whole tax year is taken in account to determine the £2k threshold.4
Small remittances
Where £2k threshold met and remittances are less than £500 and are in cash, no need to complete a tax return to pay UK tax on amount remitted. 4
Notes:
1. Including long term UK tax residents i.e. individuals who have been tax resident in at least seven out of the nine tax years preceding the current or ‘relevant’ tax year see RDRM32210.
2. Individuals tax resident in the UK are liable to pay tax on their worldwide income. Individuals whose domicile (in simple terms – permanent home) is overseas can choose to pay tax on their foreign income on remittance basis i.e. pay tax only on income brought to the UK. See RDRM31030
3. Remittance basis charge is payable by long term residents who choose to pay tax on remittance basis. see RDRM32210.
4. 60.2 Tolley Income tax Annual.
5. What happens when £2k threshold remittance basis user remits funds to the UK
Source:
To know more about taxation of foreign income in the UK read our Worldwide Disclosure blog.