The UK Tax Year
The UK tax year runs from 6 April in one year to 5 April in the next year. This will be different from the tax year of your current jurisdiction and this may well present opportunities, although it may also present complications.
UK Tax Residence
The UK runs a day counting test to assess residence. Whilst this can be straightforward, there are a number of variables which mean that each case has to be looked at on its facts, and the old ’90 day test’ with which you may be familiar is no longer an appropriate rule of thumb.
UK resident non domiciliaries (‘Res Non Doms’)
Res Non-Doms are individuals who are residents in the UK but who have a domicile in another jurisdiction. The law on domicile is complicated, but in overview, you will take the domicile of your father at the date of your birth, and this will remain with you until you reside in a jurisdiction with the intention to remain there permanently or indefinitely.
For tax purposes, any individual who has been resident in the UK for 15 of the past 20 tax years will automatically be treated as domiciled in the UK.
Income Tax and Capital Gains Tax
The UK has a special regime for Res Non-Doms who come to live in the UK – this is known as the remittance basis of taxation. This provides that a Res Non-Dom is not liable to income and capital gains tax on non-UK income and gains, provided that these are not ‘remitted’ (which broadly means ‘brought into’) the UK.
Inheritance Tax (IHT)
The general rule is that UK domiciliaries pay IHT on their worldwide assets whereas non-UK domiciliaries pay IHT on their UK situated assets only. There is no IHT charge on the first £325,000 of an individual’s estate but after that the charge is a flat rate 40%, subject to any available exemptions. Prior to 2017 it was possible to avoid IHT on UK real estate by holding it through a non-UK company. This structure no longer provides protection, and can in fact be very tax inefficient, so it is important to take advice as to how best to hold UK property with the IHT implications in mind.
It is vital to start the planning process in the year before you become UK resident in order to take full advantage of the opportunities available. We would advise that you give yourself up to a year to plan, albeit we are happy to help you at any point in the process (even if you are already resident). Planning generally involves some of the following steps:
- Reviewing and understanding your residence and domicile status for UK tax purposes;
- Segregating your bank accounts to ensure you know which funds can be brought into the UK tax free and which funds would be taxable on remittance;
- Rebasing your assets to minimise UK tax on subsequent disposal (see below);
- Reviewing and, if necessary, restructuring your asset base to minimise your family’s IHT exposure;
- Considering the use of companies and trusts through which to hold your assets; and
- Considering the UK tax implications for any companies with which you are involved (see below)
Traps for the unwary
There are a number of issues to consider before becoming a resident in the UK but examples of some common traps or misconceptions are:
- Tax Returns – The remittance basis is not automatic. You can opt in and out of the remittance basis of taxation each tax year but it must be claimed in your tax return in any year in which you do opt in.
- Capital Gains Tax – there is no uplift in base cost on your assets on your arrival in the UK. Consequently, subject to use of the remittance basis, on an asset disposal (which can include a transfer by way of gift) you will be liable to CGT on the entire gain on the asset disposed of –not just the gain since your arrival in the UK.
- Residence of your companies – UK companies are taxed based on where they are ‘managed and controlled’. If you make the material decisions in relation to a company, there is a risk of ‘importing’ the company if you become UK resident. If this were to happen, you would also risk a tax charge if you subsequently tried to export the company.
Our Private Client department advises a broad range of international clients on their UK tax and succession planning. We are used to considering complex structures and working with multiple jurisdictions to find the best solution for you and we are supported by qualified chartered accountants who can also make sure you have reported you affairs correctly each tax year.