It’s customary for UK visitors to hunt for the latest fashion accessories this season, but they should bear in mind that their shopping spree might also be racking up remittances, writes Elisabeth Squires
Summer in London is unrivalled, with events every week like Wimbledon, Ascot, Pride and countless flower shows and festivals to enjoy. And with great events comes a great opportunity to show off and the kaleidoscope of styles and fashion faux pas to be seen around London over the summer months is also beyond imagination.
A concern for many is how to keep up with latest vogue, but what is the best way of doing so for international HNWs currently living in the UK? Before cash is dispensed or credit cards brandished at dawn, such shoppers should step back and consider some of the less obvious issues which come with retail therapy, especially in relation to online shopping.
Individuals who are resident but not domiciled in the UK may elect to be taxed on the remittance basis of taxation, which means they will be subject to UK income tax and UK capital gains tax on any UK source income and gains; but they will only be subject to UK tax on foreign source income and gains if these are ‘remitted’ to the UK. Subject to certain exceptions, one of which I highlight below, only ‘clean capital’ or items purchased inside or outside the UK with clean capital can be brought into the UK without giving rise to a remittance.
The definition of when a ‘remittance’ occurs is very broad and will include almost any transaction which has some form of ‘connection’ to the UK including buying an item abroad with foreign source funds and bringing that item to the UK, using a foreign issued credit card to make purchases in the UK, and transferring funds from an offshore account to a UK bank account.
There are some useful exceptions to these rules, in particular bringing into the UK clothing, footwear, jewellery and watches, purchased outside the UK for personal, use will not be constitute a remittance.
Shoppers should remember that use of any credit or debit card in a shop in the UK will also be a taxable remittance; so anyone hitting Oxford Street, Westfield, or indeed Chelsea or Mayfair, searching for the latest trends should ensure that they make their purchases with either clean capital or by using UK source income or gains.
But what about online shopping while already in the UK?
The issue is that the banking arrangements for online retailers are largely opaque so purchasers will not know the location of the retailer’s bank account when making a purchase. Location is key: if the retailer’s bank account is a UK account then any payment (other than from clean capital) into that account will be a remittance. If the retailer’s account is a non-UK account then items can be purchased while the individual is internet shopping from the UK, using foreign income and gains, without triggering a remittance, as long as delivery occurs outside of the UK. So, the taxpayer can subsequently bring the clothing, footwear and jewellery to the UK, and rely on the exception (so fill your boots).
In summary, the best way to avoid a remittance is to ensure that any purchase delivered to you in the UK or bought via a UK website, is funded using UK source income or gains, or clean capital.
And with that in mind, you can stay savvy and chic this summer.
Elisabeth Squires works at boutique private wealth law firm Maurice Turnor Gardner LLP