What happens when you want to remit money to the UK?
Many Americans who live in the UK maintain a level of assets in the US post-arrival. So, what are the considerations needed when you decide that you want to bring money from the US into the UK?
Typically, in your first seven tax years living in the UK, you are subject to UK income tax on your UK earnings and any offshore earnings that you bring into the UK. This is known as Remittance Basis taxation. Under the remittance basis you will not pay UK tax on your foreign income and gains if they’re less than £2,000 in the tax year and you don’t bring them into the UK (for example, transfer them into a UK bank account). If you have foreign income and gains of £2,000 or more, or you bring any money to the UK, you should file a UK self-assessment tax return and either pay UK tax or claim the remittance basis. Claiming the remittance basis means that you only pay UK tax on the income or gains you bring to the UK but you lose some potentially valuable allowances such as the income tax allowance and capital gains tax allowance.
In addition to transferring money into a UK bank account, there are a number of other ways one can be deemed to remit money such as:
• Receiving a service in the UK and paying for the service using the income or gains that arose outside of the US.
• Purchasing an asset in the UK and paying for it using foreign income or gains.
• Purchasing an asset overseas using foreign income or gains, and then bringing that asset into the UK, unless it meets an exemption.
• Creating a UK debt and then paying that off using foreign income.
• Giving money to a relevant person who then uses the money to buy goods or services in the UK. A relevant person includes a husband or wife, civil partner, cohabitant plus children or grandchildren under the age of 18.
Some exemptions to a taxable remittance are items of clothing, footwear, jewellery or watches that are brought into the UK for personal use, any property with a value of less than £1,000 and property which remains in the UK for less than 275 days total.
For many people, the first time they seek to bring a large amount of money into the UK is to purchase a home. Given the potential large sums, proper remittance planning can be key particularly if you face paying up to 45% income tax on the remitted transfer.
It should be noted that any capital that you held before becoming a UK resident should be outside the scope of UK income tax. Certain other types of funds also qualify as capital such as inheritances or gifts from non-relevant individuals.
It may not always be easy to tell what income and gains you have remitted, especially if you put more than one type of income or gain into an account. There are specific rules that help to decide the ordering of any remitted money. Therefore, if you make a remittance to the UK from a bank account that contains more than one source, you should seek help from HMRC or a professional tax adviser.
For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.
Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.
MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.