“My client is a UK resident, but non-UK domiciled and claims the remittance basis of taxation as they have significant income arising from their home country which they do not usually remit to the UK. To celebrate his daughter’s 17th birthday, he is considering buying her an Audi RS3 from his overseas income to practice driving on UK roads. What are the tax implications if the client’s overseas funds are used to acquire the vehicle?“

The remittance basis not only applies to the direct foreign income or gains, in the forms of funds, but also when anything derived from the income or gain is remitted to and enjoyed in the UK (s.809L ITA 2007). The property being remitted must derive (wholly or in part, and directly or indirectly) from the income or chargeable gains of the individual (s.809L ITA 2007).

We must consider whether a remittance is only applicable in the case of an individual or additional parties. Foreign income is remitted to the UK if it is brought over to the UK for the benefit of the individual or a ‘relevant person’, such as members of their family, companies under their control and trustees of settlements of which they are beneficiaries (s.809M ITA 2007).

The family members that are included in the definition of “relevant persons” are the individual, the individual’s spouse, the individual’s civil partner and the individual’s child or grandchild under the age of 18. At the point that the child turns 18 years of age, this will no longer be a remittance to a ‘relevant person’ as they no longer fall within the definition of being a child under the age of 18. In this case, as the daughter is a relevant person and only 17 years old, the remittance basis can be applied here.

Therefore, as the individual is taxable on the remittance basis of taxation, he will suffer UK tax on the remittance of his overseas funds, in the form of the purchase of the Audi RS3 for his daughter to drive on the UK roads.

If the client delays his remittance until after 5th April 2025, he could possibly take advantage of the new Temporary Repatriation Facility which will be available for individuals who have previously claimed the remittance basis. This will allow individuals to “designate foreign capital” and pay tax on such designated amounts at a rate of 12% for the first 2 years and 15% for the final tax year of operation.

The remittance of a designated amount will not be taxable. Alternatively, depending on how long the client has been UK resident they may also be able to benefit from the proposed 4-year Foreign Income and Gains Rule. This measure will replace the existing remittance basis of taxation and will allow new UK residents to benefit from 100% relief on foreign income and gains (see HMRC guidance).

To find out more about how this will affect your company and employees please contact your KKVMS advisor.