RDRM32080 - Remittance basis: Accessing the remittance basis: Claiming the remittance basis: Remittance basis and Certificates of Residence

To prevent double taxation of the foreign income of a UK resident, HMRC is sometimes asked to certify that an individual is resident in the UK within the meaning of a particular double taxation agreement (DTA). On receipt of the certification of UK tax residence the overseas authority may then limit the tax deducted at source, so that tax is only charged at the withholding tax rate provided for in the DTA.

The withholding tax rate is the amount the source country is entitled to under the DTA, and is also the maximum amount for which credit for foreign tax can be claimed against UK tax liability on that source. This is normally on the basis that the individual’s country of residence has the primary taxing rights and that it taxes the source. The withholding tax rate may differ between agreements.

In the case of a remittance basis user the income from the other country may not be taxed in the UK because it is not remitted. Certification of UK residence could therefore result in the situation where foreign income is only partially taxed or not taxed at all in the country of source and is not taxed in the UK either. This means that instead of double taxation we would have no or only partial taxation. This is not a desirable outcome and for this reason the terms of many double taxation agreements provide that relief or exemption in the country of source will only be given if the income is ‘subject to tax’ in the country of the individual’s residence.

This means that care must be taken when asked to certify that an individual, who is a remittance basis user, is resident in the UK for the purposes of a particular double taxation agreement.

See INTM162000 onwards for further detail including how to complete a Cerificate of Residence in the UK.