Nominating income when paying the RBC

Residence & Domicile Jan 9, 2014

For non-domiciled residents (RND) who have been in the UK for more than 7 out of the 9 previous tax years, using the remittance basis (i.e. choosing to be taxed on UK income only as long as it's not remitted into the UK) has a cost beyond the loss of personal allowances. It's called the remittance basis charge (RBC) and it's currently £30,000 if you have been in the UK for 7 out of the previous 9 tax years or £50,000 if you have been in the UK for 12 out of the previous 14 tax years.

What is less known is that the RBC is a tax and therefore if you decide to pay that charge, you also need to nominate the corresponding income. You would think that doing so allows you to bring that taxed income back to the UK without further cost. Unfortunately, HMRC designed the rules so that it becomes impossible to take a credit for the remittance basis charge until and unless all other non-UK income and gains are remitted to the UK. As this is unlikely, the RBC is an additional cost of electing to be taxed on the remittance basis.

What it also means is that the income accrued in the nominated account should never be brought back to the UK! Indeed, if such a remittance was made, very unfavourable re-ordering rules would come into force would tax all future remittances at the most punitive rates available.

The good news is that you don't have to nominate more than £1 (even if the corresponding tax is £30,000!). So, to avoid such an issue with nominated accounts, you just need to open a new account offshore, which will be your nominated account. The account should earn at least £1 of income or gains in the relevant tax years and income should never be remitted. The details of this account will have to be reported in your tax return.

Keep in mind also, that the remittance basis charge may be paid from any source of funds (other than nominated income or gains), provided it is paid directly to HMRC from an offshore without generating a taxable remittance. This includes funds that would otherwise be taxable and care should be taken to ensure that the RBC is not routed via a UK account. However, if the RBC is later repaid by HMRC, it will be regarded as a remittance when the repayment is made and will be subject to UK tax at that point.


Franck Sidon

With over 15 years of experience as a Managing Director at TaxAssist Accountants, I have helped thousands of businesses and individuals achieve their financial goals and optimize their tax efficiency.