The UK is a multicultural country and when we are giving clients tax advice, we might find that even though the client is permanently resident in the UK, the client is domiciled overseas.
We acquire our domicile from our parents at birth and this is referred to as our domicile of origin. This means that people who have immigrated to the UK are still treated as domiciled overseas.
In terms of their overseas income and capital gains, they can choose to have it taxed under the arising basis which means that 100% of the income and gains is taxed in the UK and double tax relief can be claimed for any tax suffered in the overseas country.
Alternatively, the client can choose to make a remittance election in which case the overseas income and gains are only taxable if actually remitted to the UK.
Unfortunately, if you make a remittance election, you immediately lose both your personal allowance for income tax of £12,570 and your annual exemption for capital gains of £12,300.
In addition, once you have been UK resident for 7 years, a remittance tax charge of £30,000 is added to your tax liability each year. This is increased to £60,000 after you have been UK resident for 12 years.
Remember that once your client has been UK resident for 15 years, they are deemed UK domiciled and the remittance election is no longer available.
The remittance election was examined in the March 22 Advanced Tax exam.
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