Chapter 2: Relevant foreign income charged on remittance basis
Overview
3088.This Chapter provides an alternative to the arising basis for calculating the charge on relevant foreign income where a claim is made by an eligible claimant. It is based on section 65 of ICTA. The well-known term “remittance basis” is used in the Chapter heading and section headings but not in the sections themselves.
3089.The term is also used in section 878(2) (other definitions). The definition in that section applies for the purpose of the expression “a person to whom the remittance basis applies” (see, for example, sections 357 (charge to tax on overseas property income) and 857 (partners to whom the remittance basis may apply)).
3090.The Chapter includes a relief for “delayed remittances”, based on section 585 of ICTA.
Section 831: Claims for relevant foreign income to be charged on the remittance basis
3091.This section is based on sections 65 and 68 of ICTA. If a claim is made under this section neither Chapter 3 nor Chapter 4 of this Part applies to the claimant’s income for that year. (Those Chapters deal respectively with relevant foreign income charged on the arising basis (deductions and reliefs) and with unremittable income.)
3092.A claim under this section is for the remittance basis to be applied for a tax year rather than (as in the source legislation) a claim for a purely personal status from which the remittance basis flows for that year.
3093.A claim is made for a particular tax year. The claim is an annual claim. In the source legislation, a claim has to be made to the Board of Inland Revenue. In practice, it is usually made by applying the remittance basis in making the claimant’s self assessment. The section reflects this practice and does not require the claim to be made either to the Board or to the Inland Revenue. (Those terms are defined in section 878(1).) See Change 149 in Annex 1.
3094.Subsections (2) to (4) set out the conditions for a valid claim. In the source legislation condition B has a further requirement, that the claimant is a Commonwealth citizen or a citizen of the Republic of Ireland. That requirement is not rewritten. See Change 132 in Annex 1.
3095.Income arising in the Republic of Ireland is never charged on the remittance basis, so such income is excluded from a claim under this section.
Section 832: Relevant foreign income charged on the remittance basis
3096.This section is based on section 65 of ICTA.
3097.The source legislation has separate rules for calculating the amount of income charged on the remittance basis under Schedule D Case IV and under Case V. As there is no significant difference in these bases in practice no such distinction is made in this section. See Change 133 in Annex 1.
3098.The words “in respect of relevant foreign income” have been included, indicating that the sums received should either comprise the relevant foreign income in question, or represent that income. Lord Radcliffe said in Thomson v Moyse (1960), 39 TC 291 HL (page 335):
“No doubt proper construction of those words [sums received] require that the sums computable must be “of” the income, by which I would understand “sums of money derived from the application of the income to achieving the necessary transfer”.”
3099.Generally, relevant foreign income charged on the remittance basis is charged on the full amount of sums received in the United Kingdom without any deductions. However, the source legislation (tail words of section 65(5)(b) of ICTA) permits such deductions as are allowed under the Income Tax Acts in respect of profits chargeable under Schedule D Case I, that is, income from a trade but not from a profession or vocation.
3100.Subsections (3) and (4) also apply the deductions to income from a profession or vocation carried on wholly abroad. This recognises that, in the context of income arising in the United Kingdom, the calculation of income from professions and vocations uses the trading income calculation rules. See Change 134 in Annex 1.
3101.Paragraph 150 of Schedule 2 to this Act ensures that the remittances taxed by virtue of this section may include income which arose before the tax year 2005-06.
Section 833: Income treated as remitted: repayment of UK-linked debts
3102.This section contains anti-avoidance measures to defeat the practice of taking out loans in the United Kingdom and subsequently arranging for the debt to be transferred abroad and repaid out of unremitted relevant foreign income. It is based on section 65(6) to (9) of ICTA.
3103.The source legislation has already been rewritten for the purposes of employment income. See section 33 of ITEPA.
Section 834: Arrangements treated as repayment of UK-linked debts
3104.This section supplements section 833 and deals with indirect methods of repaying UK-linked debts using relevant foreign income. It is based on section 65(8) and (9) of ICTA.
3105.Subsection (4) extends the usual meaning of lender to include any person for the time being entitled to repayment (i.e. not necessarily the person who lent the money).
Section 835: Relief for delayed remittances
3106.This section allows income chargeable to tax for a tax year on the remittance basis to be reduced by sums which, for reasons outside the taxpayer’s control, could not be remitted in an earlier tax year (“delayed income”). Those sums are then treated as remitted in the year in which they arose and taxed for that year. The section is based on section 585 of ICTA.
3107.Paragraph 151(1) of Schedule 2 to this Act ensures that a claim under this section covers income which arose in a tax year before 2005-06.
3108.A claim may be made in respect of some or all of the delayed remittances. See Change 136 in Annex 1.
3109.Condition B, for income being delayed income, refers to the impossibility of obtaining currency in the territory in question and makes explicit that this means currency that can be transferred to the United Kingdom (whether the currency of that or another territory). See Change 135 in Annex 1.
3110.The source legislation refers to “foreign currency”. This means a currency other than the currency of the territory in question. Since the local currency must be obtainable, it is superfluous to add that currency not obtainable is ‘foreign’.
3111.The requirement in the source legislation, that the inability to transfer the income to the United Kingdom was not due to any want of reasonable endeavours on the part of the claimant, is omitted. See Change 135 in Annex 1.
3112.For periods preceding Self Assessment the basis year may be different from the tax year. Section 585(3) to (5) of ICTA contains rules which cater for that possibility. By 2005-06 no claim will be possible for a period preceding Self Assessment. For periods of Self Assessment the basis period is always the tax year, whether the amount chargeable is calculated by reference to the income arising or remitted. The rules in section 585(3) to (5) of ICTA have therefore not been rewritten in this Chapter. (But see paragraph 151 of Schedule 2 to this Act, which applies the rules where a claim is made under this Chapter and the tax year in which the income arose was 1996-97 or earlier.)
Section 836: Relief for delayed remittances: backdated pensions
3113.This section is based on section 585(2) of ICTA. It provides relief under section 835 for pension arrears charged under Part 9 of ITEPA. Paragraphs 606, 607 and 609 of Schedule 1 to this Act amend the relevant provisions of ITEPA to treat the income as relevant foreign income, so that the provisions of this Part may apply to such income.
3114.Arrears of pension income do not arise before the pension etc is granted, even if the grant is retrospective. So, but for this section, arrears of pension income would not meet condition A for delayed income in section 835 for all years before the year for which relief is claimed.
3115.Subsection (3) disapplies condition B for income being delayed income in section 835 for any period before the arrears become payable.
Section 837: Claims for relief on delayed remittances
3116.This section provides administrative rules for claims for relief under section 835. It is based on section 585 of ICTA.
