ACCA Advanced Taxation (ATX) Practice Exam

What is the key consideration for taxing a UK resident's overseas income?

1. Total income earned abroad

2. Source of income

3. Tax residency status

4. Arising or remittance basis

The correct answer is: Arising or remittance basis

The key consideration for taxing a UK resident's overseas income revolves around the choice between the arising basis and the remittance basis of taxation. UK tax law dictates that UK residents are generally taxed on their worldwide income, but how this is applied requires understanding the basis of taxation. The arising basis means that all income earned is taxed as it is received, regardless of where it is earned. Conversely, the remittance basis allows individuals to only pay tax on their overseas income when it is brought into the UK. This distinction is crucial for UK residents who have foreign income, as it determines their tax liability based on how and when they choose to utilize their foreign earnings. Certain conditions apply to qualify for the remittance basis, which adds complexity to the decision on how to report and pay taxes on such income. Understanding this framework is vital when navigating the implications of overseas income for UK tax purposes, making it the correct answer.