Do my client’s children have to pay the non-dom remittance charge?

Question

My client and his wife are non-domiciled (they are French), but they have been UK tax resident for seven out of the last nine years. I’ve advised my client that he and his wife will each need to pay the annual remittance basis charge if they wish to retain the remittance basis. However, I am not sure about their children (ages 9, 12 and 17). Do they need to pay the annual charge too?

Answer

The general rule is that anyone who is a ‘long-term UK resident’, by being resident in the UK for at least seven out of the previous nine tax years, has to pay the annual remittance basis charge (RBC): see ITA 2007 s 809H.

If they do not pay the RBC, they will be taxed on their worldwide income and gains, whether or not actually remitted to the UK.

Individuals who are not long-term UK resident have the remittance basis free of charge, but this must be claimed in the annual tax return (ITA 2007 s 809B).

It will be expensive enough for both your client and his wife to pay the RBC – which is an initial cost of £30,000 per year, going up to £50,000 after 12 years of residence, as per ITA 2007 s 809H(5B) – without the children having to pay too.

Fortunately, however, there are some exemptions – such as the one in ITA 2007 s 809E – which should help your client’s children whilst they are minors.

The exemption for minors

The children will be exempted from paying the RBC if:

• the child is UK resident but non-domiciled;
• the child has no UK income or gains (or less than £100 of UK investment income);
• the child has made no taxable remittances to the UK; and
• the child is under 18 throughout the tax year.

If all these conditions apply, the children can benefit from the remittance basis without having to pay the annual charge. 

As an aside, the children will also still have their annual income tax and capital gains tax allowances, which are usually forfeit when the taxpayer makes  a claim for the remittance basis (ITA 2007 s 809G).

The exemption for adults

Separately, there is an exemption that can apply to taxpayers who are over 18, which may assist the eldest child (who hasn’t got long left as a minor).

ITA 2007 s 809D contains these conditions:

• the taxpayer is UK resident but non-domiciled; and
• the taxpayer has less than £2,000 in total of unremitted foreign income or gains in the tax year.

If both of these conditions apply, the taxpayer need not pay the annual remittance charge despite being a long-term UK resident and despite being over 18. Again, the child’s annual income tax and capital gains allowances will be available if this exemption applies.

It does not matter how much total offshore income or gains there were in the tax year; what is important is how much has been left offshore. Say, for example, that the eldest child turns 18 and has £5,000 of offshore income. The exemption in s 809E cannot apply (as the child is now 18 and is a long-term UK resident). If the child brings £3,001 into the UK (leaving £1,999 offshore), then the exemption in s 809D applies. This means the remittance basis is available without the child having to pay the RBC.

Obviously, there would be tax to pay on the £3,001 brought into the UK, but the tax bill will not be as high a cost as paying the £30,000 remittance basis charge, and the remittance may be covered by the child’s annual allowance depending on what other income he or she has.

So if the children do not have much offshore income or gains, when they reach 18, they may be able to make use of this exemption by taking care how much offshore income/gains they leave outside the UK.