Taxes on Money Transferred from Overseas in the UK - DNS ...

UK residence and tax: Your residence status in the UK is the deciding factor in whether your foreign income is taxable or not. Non-residents' ... BOOKAFREECONSULTATION Whowehelp SmallBusiness BusinessStartUp Contractors Freelancers Landlords Howwehelp Accounting Bookkeeping Payroll/Autoenrolment Self-Assessment VATReturns YearEndAccounts AccountingSoftware Advisory BusinessRecovery&CompanyClosures IR35Review R&DTaxCredit SeedEnterpriseInvestmentScheme(EIS/SEIS) TaxPlanning BusinessSupportServices BankAccount BusinessInsurance BusinessPlan ManagementAccounts CompanyFormation RegisteredOffice TaxInvestigationCover WebsiteDesign&Development Packages About Team OurStory Achievements Charities Becomeafranchisepartner Resources Blogs Webinars Newsletters Guides Forms Taxesonmoneytransferredfromaforeigncountry SumitAgarwal 16Jul,2020 CompanyNews TheUKtaxsystemisrathersimpleforthosewhoonlyhaveincomeandgainsfromUKsourcesduringtheirstayinthecountry.But,forUKresidentswhohaveforeignincomeandgains,thingscanbequitedifficult.HerewediscussthetaxabilityofforeignincomeandgainsintheUK. DoIhavetopaytaxonmoneytransferredfromoverseas? YourstatusofresidencyisacrucialfactorindecidingwhetheryouhavetopaytaxornotintheUK.Ifyouareanon-resident,youwillnotneedtopayUKtaxonyourforeignincome.InthecaseofaUKresident,however,foreignincomewillusuallybetaxable.Moreover,ifyourpermanentresidenceisinanothercountry,YoumayalsobeliabletopaytaxifyouareinvestingmoneyintoUKfromabroad. FollowingaresomeinstanceswhenonemayhavetopayUKIncomeTaxonforeignincome: Ifyouworkabroad,yoursalaryistaxable Yourinvestmentsandsavingsinterestabroad Earningsthroughtherentedpropertyinanothercountry Incomethroughpensionsheldinaforeignland Declaringforeignincome:ASelfAssessmenttaxreturnisgenerallyusedtodeclareforeignincomeincaseyouneedtopaytax,butnotallforeignearningsaretaxedinthesameway. Incomethatistaxableinmorethanonecountry:Ifyouarepayingtaxinmorethanonecountry,itmaybepossibletoclaimtaxexemption.Toproveyoureligibilityforrelief,youwillneedtoapplyforacertificateofresidence. TaximplicationsoftransferringmoneytotheUK Therearedifferenttaximplicationsonbringingfunds/moneyintoUK,whichareasfollows– UKresidenceandtax:YourresidencestatusintheUKisthedecidingfactorinwhetheryourforeignincomeistaxableornot.Non-residents’overseasincomeisnottaxable;theyonlypaytaxontheirincomeintheUK.ThosewhoresideintheUKusuallypaytaxonalltheirearnings,whetherit’sfromtheUKoroverseas.ButforUKresidentswhosepermanenthomeisabroad,therearespecialrules. KnowyourUKresidencestatus:YourUKresidencystatusisnormallydeterminedbasedonthenumberofdaysyoustayintheUKinthetaxyear(6Aprilto5Aprilthenextyear). Residentstatus:Stayingfor183daysormoreintheUKinthetaxyearwouldautomaticallymakeyouaresidentofthecountry.Anotherconditionis–ifyouronlyresidencewasintheUKandyouowned,rentedorlivedinitfornolessthan91daysandyouspentnolessthan30daysthereinthetaxyear,youarearesidentofthatcountry. Non-residentstatus:Stayingforlessthan16daysintheUK(or46daysifyouhavenotbeencategorisedasUKresidentforthethreeprecedingtaxyears),youarenaturallyanon-resident.Moreover,workingfull-time(nolessthan35hoursaweek)inaforeigncountryandstayingforlessthan91daysintheUK,ofwhichonly30arespentworking,wouldmakeyouanon-resident. Yourresidencestatuswhenyoumove:ForthosewhomoveinoroutoftheUK,there’ssomethingcalled‘split-yeartreatment’whichmeansthetaxyearisnormallydividedintotwoparts–anon-residentpartandaresidentpart.Hence,oneonlypaysUKtaxonforeignearningsduringthetimesheorhewaslivinginthecountry. Onedoesnothavetoclaimsplit-yeartreatment-it’sappliedautomatically.Moreover,onecannotgetsplit-yeartreatmentifsheorhelivesoverseasforlessthanacompletetaxyearbeforecomingbacktotheUK.Thereareotherconditionsaswellthatoneneedstofulfiltobeeligibleforthisprovision.Fordetails,youcancontactHMRC(HerMajesty’sRevenueandCustoms). Ifthere’sachangeinyourstateofaffairs:Accordingtothesituationyouarein,yourstatuscanbedifferentfromonetaxyeartothenext.Youmustcheckyourstatusinkeepingwithyoursituation,forinstance: thelengthofyourstayintheUKincreasesordecreases youpurchaseorsellahouseintheUK there'sachangeinyourjob yougetmarried,separatedorhavechildren,oryourfamilycomestoliveintheUKormovesoutoftheUK Residenceandcapitalgains:Knowingyourresidencestatusiscrucialifyousellsharesorasecondhome,similartowhatyoudoforincome. UKresidents’UKandforeigngainsaretaxable.Non-residentshavetopayincometaxbutonlypayCapitalGainsTaxeitheronUKresidentialpropertyoriftheycomebacktotheUK. 'Non-domiciled'residents:ThosewhoresideintheUKbuthavetheirpermanenthome(‘domicile’)outsidethecountrymaynothavetopaytaxonoverseasincome.Thesamerulescomeintoeffectifyoumakeanyforeigncapitalgains(forexample,yousellsharesorasecondhome). Knowyourdomicile:Yourdomicileisnormallythecountryyourfatherregardedashispermanenthomeatthetimeofyourbirth.Itmayhavechangedifyoumovedintoaforeigncountryandyoudonotplantogoback. MorerulesaretherefordomicileandInheritanceTax. Ifyouarenon-domiciled:NoUKtaxischargedonyourforeignincomeorgainswhen: theyarebelow£2,000inthetaxyear youdonotbringmoneyintoUK,thatistosay,youdonotkeepthemoneyinaUKbankaccount Whenincomeis£2,000ormore:Foreignincomeorgainsof£2,000orabove,oranymoneybeingbroughttotheUKmustbedeclaredinaSelfAssessmenttaxreturn.Theoptionsare: payUKtaxonthem-whichcanbeclaimedbacklater claimthe‘remittancebasis’ Remittancebasis ClaimingtheremittancebasismeansonlytheincomeorgainsbroughtintotheUKaretaxable,but: notax-freeallowancesarethereforIncomeTaxandCapitalGainsTax(some‘dualresidents’maykeepthem) ifyouhavebeenaUKresidentforacertainamountoftime,youhavetopayanannualcharge Before6April2017 PriortoApril6,2017,youcouldclaimtheremittancebasisifyoumetthefollowingconditions: IfyouwereaUKresident IfyourdomicileoforiginwasoutsideUKandyouhadnotacquiredaUKdomicileofchoice IfyouwerebornintheUKbuthadacquiredadomicileofchoice(ordependency)outsideUK. Changesfrom6April2017 Asperthechangesmadefrom6April2017,yourworldwideincomeandgainswillbetaxedonanarisingbasis– IfyouwerebornintheUKandhaveaUKdomicileoforigin. IfyouwereaUKresidentforatleast15ofthe20taxyearsimmediatelyprecedingtherelevanttaxyear. TheremittancebasischargewasreducedtotwolevelsfromApril6,2017.Youmaypayanannualchargeofeither: £30,000fornon-domiciledpeoplewhohavelivedintheUKforatleast7ofthepreceding9taxyearspriortotherelevanttaxyear. £60,000fornon-domiciledpeoplewhohavelivedintheUKforatleast12ofthepreceding14taxyearspriortotherelevanttaxyear. However,the£90000chargenolongerappliesduetotheimplementationofthedeemeddomicilechangesfrom6April2017. Note-The£90,000chargeremainsineffectforthetaxyears2015–2016and2016–2017ifyouwereaUKresidentinatleast17oftheprevious20UKtaxyearsforeitheryear. AlsoSee:UndisclosedOverseasIncomeAndAssets IfyouworkintheUKandabroad IncasesomeoneworksbothintheUKandabroad,therearespecialrules.Foreignincomeorgains(eventhoseyoubringintotheUK)arenottaxableifyougetthe‘foreignworkers’exemption’.Youareeligibleif: yourincomefromyourjobabroadisbelow£10,000 yourotherincomefromoverseas(suchasbankinterest)isbelow£100 youroverseasincomehasbeenentirelysubjecttoforeigntax(evenifyoudidnothavetopay,forexampleonaccountofatax-freeallowance) puttogether,yourUKandoverseasincomeiswithinthelimitforbasicrateIncomeTax thereisnootherreasonforyoutofileataxreturn Ifyouqualify,youdonothavetodoanythingtoclaim. IfonatemporaryassignmentintheUK:IfyouremployersendsyoutotheUKforatemporaryassignment,youmaybeabletoclaimOverseasWorkdayRelief.Youremployercantellyouwhetheryoucanclaim. Ifyouqualify: UKtaxpayableonUKemploymentincomeisbasedonthenumberofdaysyouworkinthecountry notaxispayableonincomefromdaysyouworkabroad(aslongasitisnotbroughtintotheUK) AlsoSee:TaxImplicationsonAffiliateIncomeinUK Foreignstudents TherearespecialrulesifyouvisittheUKforstudies’purposes. Taxonforeignincome IfyouareaUKresidentwithoverseasincomeorcapitalgains,youhavetofillinaSelfAssessmenttaxreturn.However,someforeignincomeistaxeddifferently.Thereisnoneedtofillinataxreturnifyouronlyforeignincomeisdividendsbelow£300intotalandyoudonothaveanythingelsetodeclare.Rulesmaybedifferentifyourpermanenthome(‘domicile’)isabroad. AlsoSee:DoIneedtocompleteaSelf-AssessmentTaxReturn? RegisterforSelfAssessment Ifyoudonotsendataxreturn,youmustregisterby5Octobernexttothetaxyearinwhichyouhadtheincome.Afterregistering,youwillgetalettertellingyouwhattodonext. Howtofileyourtaxreturn:Thetaxreturnhasasectioncalled‘foreign’tostateyourearningsorprofitsinaforeigncountry.IncomethathasalreadybeentaxedabroadmustbeincorporatedheretogetForeignTaxCreditReliefasperyoureligibility. ThereareHMRCguidelinesonhowtodeclareforeignearningsorprofitsinyourtaxreturnin‘Foreignnotes’. Whenforeignincomeistaxeddifferently:Usually,taxationonforeignincomefollowsthesamerulesasUKincome,butwhenitcomestopensions,rentfromproperty,andincomefromsometypesofemployment,therearespecialrules. Pensions:Ifyouareresident,orwereresidentinanyofthefiveprecedingtaxyears,payingtaxonpensionsismandatory. Anyforeignpensionpayments,includingunauthorisedpaymentslikeearlypaymentsandsomelumpsums. Checkwithyourpensionprovidertofindouthowyou’llbetaxed. Rentfromtheproperty:Overseaspropertyistaxableinanordinaryway.However,ifmorethanonepropertyisrentedout,lossescanbecompensatedagainstotherforeignproperties. Specialrulesforcertaintypesofemploymentincome:IfyouworkbothintheUKandoverseas,youusuallypaytaxintheordinaryway.However,therearespecialrulesifyouwork: intheoffshoregasoroilindustry,oronaship asavolunteerdevelopmentworker,orfortheEUorgovernment Ifyouaretaxedtwice:YourforeignincomeistaxablebytheUKandbythecountrywhereyourincomeisfrom.Taxreliefcanbeclaimedtogetsomeorallofthistaxback,dependingonwhetheryourforeignincomehasalreadybeentaxed.Ifyouareanon-residentwithUKincome,thewaytoclaimreliefisdifferent. Iftaxpreviouslypaidonforeignincome:Normally,ForeignTaxCreditReliefcanbeclaimedifyoudeclareyourforeignincomeinyourtaxreturn. Theamountofreliefyougetdependsonthekindof‘double-taxationagreement’theUKhaswiththecountryyourincomeisfrom. Evenifthereisnoagreement,itispossibletogetreliefunlesstheforeigntaxdoesnotcorrespondtoUKIncomeTaxorCapitalGainsTax. Whatisrefundable:Thefullamountofforeigntaxpaidmaynotberefundable.Yougetbacklessifeither: thecountry’sdouble-taxationagreementsetsasmalleramount theincomeistaxedatalowerrateintheUK HMRCcanguideyouonhowForeignTaxCreditReliefisdetermined.ThisreliefcannotbeclaimediftheUK’sdouble-taxationagreementasksforclaimingtaxbackfromthecountryyourincomewasfrom. Ifnotaxhasbeenpaidonforeignincome:Youmustaskfortaxexemptioninthecountryyourincomeisfromif: theincomeisfreefromforeigntaxbutistaxableintheUK(likemostpensions) thatcountry’sdouble-taxationagreementrequiresyoutodoso Youcangetaformfromtheforeigntaxauthority,orapplybyletterifaformisnotavailable.Beforeapplying,youmustshowyoureligibilityfortaxreliefbyeither: fillingtheformandsendingittoHMRC–theywillconfirmyourresidentstatusandreturntheformtoyou attachingaUKcertificateofresidenceincaseofanapplicationbyletter Oncethereisevidence,sendtheformorlettertotheforeigntaxauthority. TaxonCapitalGains:Normally,youaretaxedinthecountrywhereyouareresidentandtax-freeinthecountrywhereyoumakethecapitalgain.Thereisnormallynoneedtomakeaclaim.OnehastopayCapitalGainsTaxonUKresidentialpropertyevenifsheorheisnotaresidentoftheUK. Claimingrelief:Rulesaredifferentifyourearningscomefromanassetthateither: cannotbeshiftedoutoftheUK,suchashouseorland assetthatyouareapplyingforbusinesspurposeintheUK Oncethereisevidence,sendtheformorlettertotheforeigntaxauthority. TaxonCapitalGains:Normally,youaretaxedinthecountrywhereyouareresidentandtax-freeinthecountrywhereyoumakethecapitalgain.Thereisnormallynoneedtomakeaclaim.OnehastopayCapitalGainsTaxonUKresidentialpropertyevenifsheorheisnotaresidentoftheUK. Claimingrelief:Rulesaredifferentifyourearningscomefromanassetthateither: cannotbeshiftedoutoftheUK,suchashouseorland anassetthatyouareapplyingforbusinesspurposeintheUK Whiletaxmustbepaidinbothcountries,youcangetrelieffromtheUK. Dualresidents:ItispossibletoberesidentinboththeUKandanothercountry.Youmustknowtheothercountry’sresidencerulesandalsothebeginningandtheendofthetaxyear.HMRCcanguideyouonclaimingdouble-taxationreliefifyouareadualresident. IfyouareastudentintheUK:StudentsfromoverseasnormallydonotpayUKtaxonforeignincomeorgains,providedthattheyarespentoncoursefeesorlivingcostslikestudymaterials,food,rent,andbills.It’simportanttoknowwhetherthecountryyourincomeisfromhasa‘double-taxationagreement’thatcoversstudents.HMRCmayaskyoutogiveareasonforyourlivingcostsiftheyareover£15,000inataxyear(apartfromcoursefees).Thetaxyearisfrom6Aprilto5Aprilthenextyear. Whenyouneedtopaytax:Usually,yourforeignincomewillbetaxableintheUKif: yourcountryoforigindoesnothaveadouble-taxationagreementforstudents haveotherincomeotherthanthatyoubringtotheUK bring/transfermoneyintoUKanduseitdifferentlyinsteadofspendingonlivingcostsandtuitionfees intendtoliveintheUKasyourpermanenthome(‘domicile’) ForthosewhoworkintheUK:Somedouble-taxationagreementsallowyourincometobetax-freeifyouworkwhilebeingastudentintheUK.Ifyourcountryhasnosuchagreement,yourearningswillbetaxableinthesamewayasotherswhocometoliveintheUK. AlsoSee:UndisclosedOverseasIncomeAndAssets Sendingmoneytofamilyoverseas Fromstudentsreceivingeducationinaforeigncountrytofamilymemberswhohavemovedabroadforwork,therecouldbemanyreasonsforsendingmoneyoverseas.Ifyouworkabroad,youmaywanttosendsomeofyourhard-earnedmoneytoyourfamilystayinginyourhomecountry.And,whileanindividual’staxaffairsbecomemoredifficultasaresultofinternationaltransactions,itisextremelyimportanttocorrectlyfilehisorhertaxreturns. Taxconsiderations:TosteerclearofanydifferencewithHMRCintheUK,it’sprudenttothinkaboutthepossibletaximplicationsofsendingmoneyoverseas. Thegifttax:Themajorconcernwhensendingmoneyabroadisoftenthegifttax.Whenindividualssendmorethanafixedamounttothesamepersonwithinayear,theyneedtofileareturnwiththeirrelevantgoverningbody. Taximplicationsfordifferenttypesofrecipients:Thetaxrequirementsforsendersdifferbasedontherecipientsoftheforeignexchangefunds.Fordifferentcategories–asmentionedbelow,thetaximplicationisdifferent. Tofamily:Onmoneybeingtransferredtofamily,agiftorinheritancetaxisapplicableintheUK,althoughthere’saprovisiontoavoidtaxationbydividingthetotalannualfundsbythenumberofpeoplebeingsupported.However,thiscouldpossiblybringaboutawarningforregulators—particularlyifitisdonetoevadesubmittingpersonalidentificationwhensendingcash.Sothismustbedonecarefully. Toadependentchild:Nogiftorinheritancetaxischargediftherecipientisadependentchildbecausethepurposeofsendingmoneyistosupportaminor.Butifthechildisnotadependent,thetaxisimposed. Tothesender’saccounts:Oncethemoneybeingsentexceedsacertainlimit—evenifitisonlyforaday,individualswhohaveabankaccountinaforeigncountrymustdeclarethattotheirrespectivegoverningbody. Amountofmoneyiscrucial:Individualswhoareplanningonsendinglargeamountsofmoneyshouldconsultafinancialadvisorwhoiswell-informedaboutgovernmentregulationsregardingmoneytransfers.Aninternationaltaxadvisorcaneducateindividualsabouttheirtaxliabilitieswhenmakingmoneytransferswhilecurbingthecostslinkedwithsendingmoneyoverseas. AlsoSee:HowtoAvoidInheritanceTax? Freeconsultation Anyquestions?Requestacallbackfromourexperts. Let'sTalk FreeConsultation previouspost nextpost Abouttheauthor SumitAgarwalSumitAgarwal(ACMAACAIndia),theManagingpartnerofdnsaccountantsisahighlyrespectedaccountantwithexpertiseinhelpingowner-managedbusinesses. 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