Arising Basis vs Remittance Basis
UK taxation for residents who are non-domiciled, and who hold foreign income or gains, can be highly complex. Each tax year, these individuals have had the option to be taxed on a remittance basis, where foreign income and gains are only taxed if brought into the UK. However, from April 2025 the UK has moved to an Arising basis form of taxation, where foreign income is taxed as it arises, rather than when it is remitted.
The FIG Regime is a relief for new residents of the UK, who can remit foreign income to the U.K. mostly tax free. However, after a 4 year period has passed, any foreign income will be taxed on an arising basis. This leaves long-term residents subject to a new form of taxation, which if not prepared for, can leave you liable to a larger taxation amount than you were prepared for in the coming years.
To prepare for the change in legislation for taxation on your foreign income, it is important to first understand what the differences are between the old and the new system.
Arising Basis
The arising basis is the default taxation method for UK residents who are domiciled, or deemed domiciled, in the UK. Under this basis, individuals are subject to UK tax on their worldwide income and gains, regardless of whether those funds are brought into the UK. Non-domiciled residents may also elect to be taxed on the arising basis, giving them the same treatment for foreign income and gains.
While the arising basis potentially allows full access to the personal allowance and the capital gains annual exempt amount, it can create complexities for individuals with foreign income. Any taxes already paid overseas may be eligible for a foreign tax credit in the UK to avoid double taxation, but careful planning is required, particularly for US citizens, who remain liable for US taxes on worldwide income.
For many non-domiciled residents, the arising basis provides certainty and access to allowances, but it demands careful reporting of all foreign income and gains each year. Professional guidance is often necessary to ensure compliance and to optimise tax outcomes, particularly for those with significant international earnings or investments.
Remittance Basis
The remittance basis is the Pre-April 2025 method available to UK residents who are not domiciled or deemed domiciled in the UK. Under this basis, foreign income and gains are generally outside the scope of UK taxation unless they are brought—or “remitted”—to the UK. UK-sourced income and gains remain taxable as usual.
While the remittance basis can reduce immediate UK tax on foreign income, there are trade-offs. Claiming it may mean losing access to the personal allowance and the capital gains annual exempt amount if foreign income and gains exceed £2,000 in a tax year. Additionally, long-term residents may be required to pay a Remittance Basis Charge (RBC) to continue using this method. The RBC applies as follows:
- £30,000 if resident for 7 out of the previous 9 tax years
- £60,000 if resident for 12 out of the previous 14 tax years
After 15 out of 20 years of UK residence, the RBC no longer applies, but the individual is treated as deemed UK domiciled and cannot claim the remittance basis. A remittance occurs whenever foreign income or gains are brought into the UK, used to pay for UK services, or transferred in a way that benefits the individual in the UK. Careful management of bank and investment accounts is essential, especially to avoid “mixed fund” complications, which can make it difficult to track the source of remitted funds for tax purposes.
For non-domiciled residents working in the UK, Overseas Workday Relief (OWR) may provide relief for income earned for work performed outside the UK, but this was only available for the first three years of UK tax residence. However, the eligibility requirements for this have now changed and it is worth consulting the HMRCs Guidlines on the topic or talking to a tax professional.
Temporary Repatriation Facility (TRF)
For individuals who previously used the remittance basis, there may still be pre-6 April 2025 foreign income and gains that were never taxed in the UK. The Finance Act 2025 introduced the Temporary Repatriation Facility (TRF) to provide a limited window for these amounts to be brought into the UK at a lower tax rate.
The TRF applies for a fixed three-year period covering the 2025-26, 2026-27, and 2027-28 tax years. To use the facility, individuals must formally designate amounts of pre-April 2025 foreign income or gains as “qualifying overseas capital.” Once designated, these amounts are treated as capital on which the TRF charge is paid. Importantly, designated amounts do not need to be physically remitted to the UK during the TRF period to benefit from the lower rate, though remittance is permitted if desired.
The process of designation can include cash held overseas, investments, or even assets purchased with pre-2025 income, such as property. Mixed funds are subject to specific ordering rules, with designated amounts treated as priority for remittance. Because the rules governing the TRF are highly technical, determining eligibility, calculating designated amounts, and planning the timing of remittances can be complex. Professional advice is strongly recommended to ensure compliance and optimise the potential tax benefit.
Arising vs Remittance Basis: Key Differences
Tax Scope
Under the arising basis, all worldwide income and gains are taxable in the UK, whether or not they are brought into the country. In contrast, the remittance basis only taxed foreign income and gains when remitted to the UK, while UK-source income remained taxable.
Allowances
The arising basis allows full use of the personal allowance and capital gains exemption, subject to tapering for high earners. Claiming the remittance basis historically meant losing these allowances if foreign income exceeded £2,000, and there could be an additional Remittance Basis Charge depending on the number of years of UK residence.
Double Taxation Risk
Paying tax on the arising basis may expose individuals to potential double taxation on foreign income and gains, requiring careful use of foreign tax credits and treaty reliefs. By contrast, the remittance basis limited UK tax to amounts brought in, although US citizens and other foreign taxpayers may still face taxation abroad.
Flexibility
The arising basis is fixed, requiring declaration of all worldwide income and gains annually. The remittance basis, previously, allowed non-domiciled residents to choose annually between arising and remittance, providing more flexibility. This choice no longer exists except through the TRF for legacy pre-2025 amounts.
Overall, from 6 April 2025 onward, most UK residents must follow the arising basis, with planning now focused on managing double taxation and optimising available reliefs.
Planning with the FIG Regime
For individuals returning to or newly resident in the UK, the Foreign Income and Gains (FIG) regime provides relief on certain foreign income and capital gains for up to four years. FIG allows eligible taxpayers to pay UK tax on foreign income and gains in a simplified manner while temporarily reducing the risk of double taxation.
It is important to understand the interaction between FIG and the arising basis of taxation, as FIG claims only apply for qualifying tax years and specific types of foreign income and gains. Careful planning is required to ensure relief is maximised without unintentionally triggering other UK tax liabilities.
Learn more about the FIG regime and eligibility in our detailed guide on qualifying new residents and the four-year relief period.
Need More Help?
Deciding between the arising and remittance basis is a complex exercise requiring detailed calculation and planning. For US citizens or other foreign taxpayers, it is critical to consider both UK and foreign tax obligations to prevent double taxation.
Professional advice is strongly recommended to determine the most tax-efficient approach and ensure compliance with all reporting requirements.