She has income in China but the new stricter foreign currency controls in china means she is restricted on how much of the income can leave China. Is she still subject to UK tax on the Chinese income she can’t access in the UK because she is using the arising basis and what happens if the rules change?
A. The general rule is UK residents are subject to UK tax on worldwide income unless electing to use the remittance basis. However, there is an exception to this rule for ‘unremittable income’.
S841-S845 ITTOIA 2005 allows the income to be exempt from UK tax when a person is liable for income tax on income arising in a territory outside the United Kingdom, and
the income is unremittable.
Income is unremittable if conditions A and B are met:
Condition A is that the income cannot be transferred to the United Kingdom by the person who is liable for income tax in respect of the income because of–
- the laws of the territory where the income arises,
- executive action of its government, or
- the impossibility of obtaining there currency that could be transferred to the United Kingdom.
Condition B is that the person who is liable for income tax in respect of the income has not realised it outside that territory for an amount in sterling or in another currency which the person is not prevented from transferring to the United Kingdom.
A claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the income would be charged to tax if no claim were made.
If the income ceases to be unremittable, the income is treated as arising on the date on which it ceases to be unremittable. And If a person who would have become liable for income tax as a result of this section has died the personal representatives are liable for the tax instead, and the tax is a debt due from and payable out of the estate. See SAIM1160 for an example of this.
If you have a tax query, why not contact the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
