Definition of UK income under the remittance basis

I'd like to understand the tax treatment for a certain type of personal income under the current non-dom (remittance basis) rules. Specifically whether (1) personal income in the form of a dividend arising from a UK trading company owned by an EU holding (non-trading) company, in turn owned by the non-domiciled UK resident, is considered foreign or UK income; and whether (2) personal income in the form of a dividend arising from a foreign (EU) trading company owned by a UK holding (non-trading) company, in turn owned by the non-domiciled UK resident would be considered UK or foreign income. To clarify, these are two mirror situations and in each case the dividend is distributed from the holding company which owns a majority stake (50% or more) of the trading company. Consider the holding company as a personal private limited company (so the new QAHC provisions do not apply). Assume all dividends to be paid to a non-UK bank account (therefore non-remitted if they are non-UK income in the first place). Please assume the shareholding in the UK trading company in case (1) to predate the remittance basis election by the taxpayer, so BIR would not apply (and is outside the scope of the question). In case (1) I would assume the payment to be UK income because even if the dividend is distributed from an overseas company to an overseas account, the value produced by the company is UK-related and the company profited from the UK economy. In case (2) it would seem odd to treat it as UK income given that the holding company does not carry out a business and does therefore not generate any income per se. Finally, in general terms what is the normative and policy basis for defining UK income under the remittance basis? Finally, is there any difference if the shareholding in the trading company is qualified vs unqualified, and what is the relevant threshold? Thank you for your help.

Hi,
We are unable to reply to scenarios.  
The remittance basis applies only to foreign sources of income / capital gains not remitted to the UK.  
All sources of UK income and capital gains, remain taxable in the UK.  
You can find quidance on the remittance basis at Residence, domicile and the remittance basis: RDR1.
Thank you.

Dear HMRC Admin, thank you for your kind reply. I originally submitted the question as a scenario because I thought it could help me better understand the mechanisms described. Let me rephrase it in a way that is adherent to a state of affairs and therefore not a scenario. I was also unfortunately not able to find suitable guidance in RDR1, despite repeatedly before posting this question. Tradeco GmbH makes a profit in Germany with no permanent establishment in, and no ties to, the UK. It distributes these profits, after all relevant German taxes, to its shareholders. One of these shareholders is Holdco Ltd, incorporated in the UK, which owns 80% of stock and voting rights in Tradeco GmbH. Holdco Ltd is wholly owned by a UK resident non-domiciled natural person. If you deem the above to still be a "scenario" you are unable to reply to, please disregard it for the purposes of my question and only refer to what follows. You write that: (1) "All sources of UK income and capital gains, remain taxable in the UK". The trading income of DE Tradeco GmbH is clearly not UK income. If a dividend is distributed to UK Holdco Ltd and then in turn distributed to the non-dom shareholder of Holdco on a foreign bank account, is that considered UK income because it is paid by a UK company? Even if the holding company is merely a "pass-through" entity and therefore transparent? (2) "The remittance basis applies only to foreign sources of income / capital gains not remitted to the UK". I think in this case there would be no remission if the dividend is paid to a foreign bank account, correct? The issue then remains of whether the dividend from the holding company to the natural person was UK income for the natural person in the first place, even if it was "produced" abroad and the holding company is "pass-through"/"transparent". Thank you for your support.

Hi,

Your question would appear to cover both personal tax and corporation tax concerns in relation to the dividends, which make your question difficult to review.  This forum covers personal tax only.  It would appear that the UK company is in receipt of foreign dividends and would share those foreign dividends with the share holders, who would declare as foreign dividends and not UK dividends.  Dividends arising from the UK company and paid to shareholders would be classed as UK shares and dividends.

Thank you.

Thank you for your reply. You are correct in saying that this is a difficult question since it covers both corporation and personal tax. However, I'd like to focus on the personal tax aspect of the questions under the remittance basis. A UK holding company distributes a dividend arising abroad (from the trade/business of a foreign entity that it owns) to a UK resident non-domiciled on a personal, foreign bank account. In terms of the natural person's personal tax, is this UK income or not under the remittance basis? You kindly write that "It would appear that the UK company is in receipt of foreign dividends and would share those foreign dividends with the share holders, who would declare as foreign dividends and not UK dividends. Dividends arising from the UK company and paid to shareholders would be classed as UK shares and dividends." I'm afraid it's not very clear what you mean. Do you mean that if the trading company is foreign, the dividends are foreign income despite the holding company being UK resident? And that if the trading company is UK resident, the dividend personal income is UK income? If so, the UK holding company is transparent for tax purposes and the income remains foreign if it's initially produced abroad? Thank you again for your help.

Hi atom,
Please have a look at the guidance here regarding income from overseas:
Remittance basis 2024 (HS264)
Thank you. 
 

Dear HMRC Admin, thank you for your reply, I have referred to the guidance in both "Residence, domicile and the remittance basis: RDR1" and "Remittance basis 2024 (HS264)". What I couldn't find is whether the use of a UK private Ltd trading company to receive the foreign dividend "stains" the dividend which becomes UK income or whether the dividend (which becomes income for the ultimate owner upon declaring it) remains foreign because it was produced abroad. Thank you.

Hi,
We can only provide general information / guidance in this forum.  
For an answer to a detailed question of this nature, you would need to contact our self assessment helpline on 0300 200 3310, or seek professional advice. 
Thank you.