Charge is on full amount remitted in the tax year even though client may not be claiming remittance basis in that in the year of remittance1.
Foreign investment income (interest and dividends) is taxed as non-saving income
, when remittance basis applies2.
Taxed as non-saving income means no personal saving allowance or dividend allowance is available. Plus, no starting rate for interest3, dividends taxed at normal rates (currently 20%, 40% and 45%) and not at the special rates applicable to dividends (currently 8.75%, 33.75% and 39.35%)4.
Below is a simple example demonstrating the concept of `Mixed funds`, in practice bank accounts will need to be analyzed line by line to be classified as per ITA 2007 section 809 Q (3).
Example: A client who first came to the UK, say on 6th April 2019 has been not being declaring foreign income in their tax returns as it was £2k threshold.
Client had only foreign interest income which was saved in two Bank accounts say Account A and Account B5.
Detail of foreign interest income:
Tax Year | Account A | Account B | Total |
2020 | £1,500 | £400 | £1,900 |
2021 | £2,000 | £400 | £2,400 |
2022 | £1,500 | £400 | £1,900 |
2021’s income declared to HMRC as it was over £2k. In tax year 2022-23 client remitted c£20k to UK from Account A.
As interest income is saved in same account as the capital, both Account A and B now have `mixed funds`.
Client’s total income since he has been UK tax resident in Account A = £1,500 + £2,000 + £1,500 = £5,000.
Less income on which tax already paid £2,000.
Taxable income on remittance £5,000 – £2,0006 = £3,000.
Bonus
1. The rate of exchange that should be used when declaring the remittance is the actual rate of exchange on the date of remittance into the UK7.
2. Remember to claim FTCR or DTAA relief like NRE relief as well.
3. Please remember if there are different sources of income eg. Foreign interest, dividends or capital gains, ITA 2007 sec 809Q (3) prescribes the order in which they are treated as remitted to the UK.8
Notes:
1. Tolley Income tax 60.5
2. ICAEW Text book Pg 331
3. RDRM31140
4. HS 264 Point 3.1
5. Remittances distinguished account-wise – LITRG website.
6. Tolley Tax computations 23.1 Notes (e).
7. RDRM31190
8. For mixed funds see RDRM35210 et seq