The Remittance Basis: A Case Study
Let's look at Sofia, a non-domiciled UK resident who works in London. She earns income in the UK and also has savings interest from a bank account in her home country of Italy.Sofia is a UK resident but is domiciled in Italy. She has been in the UK for 4 years, so she can use the remittance basis for free.
Sofia's Income
- UK Salary: £80,000
- Italian Bank Interest: £5,000
Using the Remittance Basis
Sofia claims the remittance basis on her tax return. This means:
- Her UK salary of £80,000 is taxed in the UK in the normal way.
- Her Italian bank interest of £5,000 is her unremitted foreign income. As long as she keeps this money in her Italian bank account and does not bring it to the UK, she pays no UK tax on it.
Remitting Income
One day, Sofia uses her Italian debit card to buy a sofa in London for £2,000. By using her foreign income to pay for a UK service, she has remitted £2,000 to the UK.
This £2,000 now becomes taxable in the UK, and she must declare it on her next tax return.