If you’re a UK resident with significant foreign income or assets, you may have heard about the Remittance Basis Charge (RBC). For many, the RBC has been a way to manage UK tax exposure while maintaining an international lifestyle. But paying the charge from offshore funds isn’t as simple as it sounds. If you get it wrong, you could trigger an unexpected UK tax bill. Here’s how to get it right, with practical examples and solutions.

What is the Remittance Basis Charge (RBC)?

The RBC is a fee paid by long-term UK residents who claim the remittance basis for their foreign income and gains. Instead of paying UK tax on all worldwide income, you pay tax only on what you bring into the UK. If you’ve been resident for at least seven out of the previous nine tax years, you may need to pay the RBC—£30,000 or £60,000 depending on your years of residence.

Claiming the remittance basis means you lose your personal allowance and capital gains exemption, but for those with substantial offshore income, it can be worthwhile.

Rules for Paying RBC from Untaxed Foreign Income

Here’s where things get tricky. If you pay the RBC using untaxed foreign income or gains, and the payment is made to HMRC from an offshore account, you need to be careful. The payment itself must not be treated as a remittance—otherwise, you could end up paying UK tax on the amount used to pay the charge.

The key is to pay HMRC directly from your offshore account, by cheque or electronic transfer. If you do this, the payment does not count as a remittance and won’t trigger a UK tax charge. If you transfer the funds to a UK account first, or use a third party, you risk creating a taxable remittance.

Example: Using £100,000 Offshore Income to Pay RBC Without Remittance

Let’s say you have £100,000 of untaxed income sitting in a Swiss bank account. You owe the £30,000 RBC for the year. To avoid a remittance, you instruct your Swiss bank to send the payment directly to HMRC’s account, referencing your tax number. You do not transfer the money to your UK account or use it for any other UK expenses.

HMRC receives the payment, and because it came directly from your offshore account, it is not treated as a remittance. You’ve paid the charge, and your remaining £70,000 stays offshore, still outside the UK tax net unless you bring it in later.

If you had transferred the £30,000 to your UK account first, it would be a remittance, and you’d owe UK tax on the full amount.

Mixed Fund Ordering and Clean Capital Strategies

Many people have “mixed funds”—accounts containing a blend of clean capital, foreign income, and gains. If you use a mixed fund to pay the RBC, you need to be careful about the ordering rules. HMRC will treat the payment as coming first from income, then gains, then clean capital. This can create a tax charge if the payment is deemed to come from untaxed income or gains.

To avoid this, keep separate accounts for clean capital and foreign income. Use a clean capital account to pay the RBC if possible. If you must use a mixed fund, document the sources and keep clear records. If you’re unsure, ask your bank for a breakdown of the account history.

Common Mistakes and HMRC Scrutiny

The most common mistake is transferring funds to a UK account before paying HMRC. This is a remittance, and you’ll owe UK tax on the amount. Another pitfall is using a mixed fund without understanding the ordering rules. If HMRC investigates, they’ll want to see clear evidence of the source of funds and the payment trail.

To avoid problems:

• Always pay HMRC directly from your offshore account.

• Keep separate accounts for clean capital and foreign income.

• Document every payment and keep correspondence with your bank.

• If you’re unsure, check HMRC’s guidance or ask for clarification.

Planning Ahead for the Abolition of the Remittance Basis

From April 2025, the remittance basis is being abolished for new foreign income and gains. If you’re currently using the remittance basis, review your position now. Consider whether you need to pay the RBC for the final year, and make sure any payments are made correctly.

If you have significant unremitted income or gains offshore, look at the new Temporary Repatriation Facility (TRF). This allows you to bring funds into the UK at a reduced tax rate for a limited period. The rules are complex, but it’s worth considering if you want to repatriate funds before the new regime takes effect.

Real Example: Avoiding a Tax Trap

Maria, a UK resident with a £2 million offshore investment portfolio, needed to pay the £60,000 RBC. She instructed her Jersey bank to send the payment directly to HMRC. She kept all correspondence and bank statements showing the payment trail. HMRC accepted the payment, and no remittance was triggered.

Her friend, Tom, transferred £60,000 from his Cayman account to his UK bank before paying HMRC. He was assessed for UK tax on the full amount, costing him thousands more than expected.

Final Checklist

• Pay HMRC directly from your offshore account—never via a UK account.

• Keep separate accounts for clean capital and foreign income.

• Document every payment and keep records for HMRC.

• Review your position before April 2025 and consider the TRF if you want to bring funds into the UK.

Feeling Overwhelmed? You’re Not Alone

Paying the Remittance Basis Charge from offshore can be confusing, but with careful planning and clear records, you can avoid unexpected tax bills. The rules are changing, but you have options. Take action now, keep asking questions, and make sure your payments are made correctly.

Disclaimer: This article provides general information for educational purposes only. It is not legal, financial, or tax advice. Outcomes can vary based on your personal circumstances.