The importance of providing specialised UK tax planning advice for non doms.
As vaccines roll out across many parts of the world, the reopening of borders will follow and the anticipation of a new influx of individuals (and capital) will revitalise Tax Planning in the UK.
The UK has a beneficial taxation regime for those who become UK resident but remain non-UK domiciled. The remittance basis allows an individual to limit his exposure to UK tax to UK income and gains, but to protect UK tax on foreign income and gains that are not brought to or enjoyed in the UK. The ability to utilise this “remittance” basis to full effect relies upon timely and relevant tax planning ahead of arrival. Solid tax planning can save you money and avoid paying unnecessary taxes.
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Steps to consider during tax planning
Ring-fencing clean capital and rebasing appropriate assets are examples of steps that should be considered. You need to look at you and your family’s specific needs before becoming resident to understand the financial requirements for your planned UK lifestyle. While considering the tax implications in the UK, you also need to consider the impact in respect of your home country or the jurisdiction you are leaving behind.
Who qualifies as a Tax Resident in the UK?
Broadly speaking, an individual will be UK tax resident if they spend 183 days or more in the UK during the tax year. The commencement of UK residence may not always be as straight forward. An individual may trigger residency as a result of factors such as working patterns, and connection factors to the UK such as the presence of family and availability of accommodation in the UK. Care should be taken to ensure that effective tax planning is undertaken before UK tax residency is triggered.
Individuals should think about the cross-border implications on the shoring up of clean capital before their UK arrival. Should assets be disposed of before arrival to free up clean capital or should pending income receipts be accelerated? There is often a period of cross-over between periods of residence that should be thought through carefully when considering the maximisation of clean capital before their UK arrival.
The term remittance is complex and widely defined. Cash brought to the UK will of course fall within the definition but the rules also extend to capture assets transferred to the UK and transactions where, for instance, non-UK credit cards are used to settle expenses incurred in the UK. It is important to note that remittances made by connected persons may also be caught.
Acquiring UK property
The acquisition of a property in the UK has its own particular considerations; not least how to fund the purchase of the property or the acquisition of a lease. Early advice is imperative to ensure that the remittance of the funds for the acquisition (and the accompanying stamp duty taxes) may be structured as tax efficiently as possible. It is also sensible to think forward to a future disposal and consider main residence reliefs for capital gains tax. Residence status at the time of purchase and disposal will dictate the treatment for UK stamp duties and capital gains tax at the relevant moments.
Business and employment in the UK
Many individuals will seek a move to the UK for business or employment reasons. You need to consider the structure of the business interest and the various tax reliefs available for investment.
In addition, there are opportunities for the remittance basis to apply to those who are moving to the UK for employment but will conduct a proportion of their duties outside the UK. The favourable remittance basis in this respect is available for up to 3 years.
Investments and interests outside the UK
It is essential to consider the manner in which non-UK investments, and existing structures such as trusts, foundations and companies, are held. The segregation of overseas income and capital is key for a UK resident, non-UK domiciled individual accessing the remittance basis. Where foreign income is brought to the UK, this can generate an income tax charge at a marginal rate of 45%. Foreign gains may create a capital gains tax charge at 20% (or 28% depending on the asset disposed of).
Successful bank account segregation minimises the risk of inadvertent taxable remittances to the UK but the accounts will need to be actively managed to avoid the mixing of funds.
We can advise on the bank structure and assist the UK resident in instructing a bank or financial adviser who has relevant experience, managing such structures for non-UK domiciled individuals.
An individual may wish to look at particular investments and wrappers such as overseas investment bonds to provide a UK tax efficient return and income stream. It is possible to elect to shelter overseas income and gains while UK resident but care should be taken as it will only be fully effective if the individual (and family) are able to live without recourse to the funds in the UK.
A period of renewed international travel is likely to signal an end to the extended time spent by many in lockdown. Careful planning can significantly reduce tax liabilities arising in the UK for the non-domiciled considering a move to the UK.