Category: HMRC

Foreign capital losses – remittance basis

When to make the foreign capital losses election and is it beneficial to make this election.

Foreign capital losses – remittance basis

Remittance basis is basically a deferral of UK tax. If foreign income and gains remain offshore and are never regarded as remitted to the UK, the tax charge is effectively deferred indefinitely.[RDRM31030]

Foreign income or gains not covered by remittance basis

Gains under a policy of life assurance are always taxable on the full amount on the arising basis, irrespective of your domicile or residency status.[RDRM31110]

Foreign capital losses election

Non-domiciled remittance basis users are required to make an election under TCGA1992/s16ZA if they want their overseas losses to be offset against foreign chargeable gains.

The election should be made for the first year for which the remittance basis is claimed, irrespective of whether the individual has any foreign chargeable gains or overseas losses in that year. The election will usually be expected to be made within the white space in the Capital Gains supplementary pages of the same SA Return as the first remittance basis claim is made. The election is irrevocable.

The usual time limits for claims/elections at TMA70/s42 and 43 apply.

If the individual does not make an election, relief cannot be allowed in respect of any foreign losses accruing to them in that year, or any future tax year in which they remain not domiciled in the United Kingdom (whether or not they claim or use the remittance basis in those later years).[RDRM31170]

Capital Gains Manual
Rules for foreign capital losses for remittance basis users are given in 5 pages from CG25330 to CG25330D.

CG25330D contains an example, I made an Excel sheet to demonstrate it better.

Foreign-Losses-Excel Example CG25330DDownload

Main point to remember is:

Effect of the election is that losses (UK and foreign) are first adjusted against foreign gains not remitted (thus not taxable) before UK taxable gains. This will make tax payer pay higher taxes if their UK losses are adjusted against their foreign gains which they do not plan to remit to the UK.

Thus, it is important to make the capital Gains election in the first year of making remittance basis claim and secondly it may not be always beneficial to make this claim.

Foreign agriculture income

UK tax resident individual having agriculture income in India.

Agriculture income is exempt in India1 but taxable in the UK. Thus, an individual tax resident in the UK having agriculture income from India will need to pay tax on it in the UK.

Agriculture income can be of two types – trading income or rental income.

Trading income
Whether it is a trade or not will be decided using the usual principles of `badges of trade`.2 Agriculture income is generally calculated in the same way as other businesses3. Deduction of expense is allowable. BIM55095 is misleading, please read BIM37625 for more details on the case – Sargent v Eayrs [1972] 48TC573.

Taxes payable – Income tax only. NICs not payable as trade wholly outside the UK.5

Rental Income
Farm lands rented out – rent could be an agreed minimum rent or rent based on the value of produce. In both cases taxed as rental income.4

Taxes payable – Income tax only.

Taxable income
The amount of income taxable on the landowner will often be much the same whether he or she is treated as a farmer taxable as a trader or as a landlord in respect of property income. The main advantage of farming treatment for the landowner lies in the reliefs from Capital Gains Tax and Inheritance Tax which are available to farmers but not to landlords. See BIM55085

Bonus

Capital gains on sale of Agriculture land in rural area is not taxed in India6. But again taxable in the UK.

Trading allowance avaliable for foreign agriculture income see section S783A –S783AR Income Tax (Trading and Other Income) Act 2005 (ITTOIA).

Notes

  1. Indian Income Tax Text – read section 2 (1A) and section 10 (1)
  2. BIM55095
  3. 31.1 Tolley Tax guide.
  4. 31.13 Tolley Tax guide.
  5. Re Class 4 see SSCBA 1992, Section 15 (1) c ; re Class 2 see SSCBA 1992 , Section 11 (3)
  6. There are detailed rule defining agriculture land and rural area, see para 167 of book – Direct taxes by VK Singhania.

Source

Further reading

To know more about taxation of foreign income in the UK read our Worldwide Disclosure blog.

Foreign income £2k threshold

This rule applied till tax year 2024-25.

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

ITA 2007 sec 809D

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, where filing SA return they should include Residence and domicile pages and tick Box 29. 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.

HMRC : How to change access code – two step verification

I have listed below 4 scenarios :

A. If you wish to change your telephone number or how you receive the code you can do this by logging into your business tax account and following these steps:

  1. Select the Manage account link which is shown on the top menu bar.
  2. Under the account details heading, select the view or change your account details link.
  3. Next to the Government Gateway details heading, select the Manage your Government Gateway details link.
  4. Click `Your Government Gateway profile`
  5. Select the How you get access codes link.
  6. Then change, add or delete the entries on that screen as required.

B. If you cannot log into your business tax account, but someone else in your business who is an administrator can, they can follow these steps:

  1. Select the Manage account link which is shown on the top menu bar.
  2. Select the Add or delete a team member link.
  3. Select the Manage link for the required team member.
  4. Select the Remove (name of user) security preferences link.

C. If no one can log into business tax account you can contact HMRC:

Via Webchat : Link ; then click Ask HMRC online

or

Via Telephone : Online Services Helpdesk: 0300 200 3600
Phone line opening hours are:
Monday to Friday: 8am to 6pm

D. If all else fails, contact us to file you tax return. We will just need your UTR. If you do not have a UTR we can apply it for you but this will take time.

Source:
Employer Bulletin June 2022

Should I submit my return early ?

Thousands of individuals file their tax returns on the first day

The tax year has ended.

Main benefit of submitting tax return as soon as possible is that the enquiry window runs for a full 12 months from the date the tax return is received. So for example a return received by HMRC on 20 June 2018, the enquiry window will close on 20 June 2019 – EM1501

Other benefits enumerated by HMRC Agent Update 110.

  • submitting your tax return now does not mean you pay now — when you submit your tax return, you’ll know how much you need to pay, so you can plan your finances and cash flow better — this might mean you can book a holiday, make an investment or it may mean you have to save for your tax bill
  • your tax return provides you with proof of income — you’ll need this if you apply for a mortgage, loan, or if you need to access certain benefits and schemes such as Tax-Free Childcare
  • you can claim a refund faster — if you’re due one
  • knowing what you owe, might mean you can reduce your payments on account if your tax bill is lower than forecast
  • you’ll avoid any chance of getting a penalty for submitting your tax return late, so do it now and get it out of the way
  • beat the rush — HMRC’s busiest time is January so if something goes wrong and you need to contact them, you might find it hard to get through
  • peace of mind — so you can get on with the important things in your life

Fascinating facts about Self Assessment