Tax considerations for individuals coming to the UK
Sati Virdee
by Sati Virdee
UK taxability is dependent on the residence status of the individual; and domicile (to be covered under a separate article) is also important when dealing with an individual’s exposure to inheritance tax.
The rules to determine UK residence status are known as the Statutory Residence Tests (SRT) and although the rules can provide certainty in determining residence, they do contain some complex nuances and pre-residence planning is key.
This note assumes that the individual will be coming to the UK for the first time with no prior UK connection, becoming UK resident, and making a claim for the remittance basis as a non-domiciled individual. In this case, offshore income and gains are not taxed if they are not remitted to the UK.
The following are some points that arose when providing advice to recent client arrivals to the UK:
UK tax compliance advice including consideration of the beneficial split year basis (SYB) claims, should be sought so that the relevant tax obligations are met.
Funds representing pre-residence income and gains (prior to 6 April for the tax year of residence), and any subsequent inheritances should be kept in one bank account called the clean capital account, with any interest earned on the account credited to a separate account called the income account. The income account should not be used for UK expenditure and remittances should be from the clean capital account only.
Where there is no access to clean capital, foreign income/gains remitted will not be taxed if they are used for entrepreneurial investment in the UK, subject to specific conditions being met.
If the individual is planning an asset disposal standing at a significant gain, if possible, the sale should be accelerated to occur while non-UK resident. Proceeds can then be added to the clean capital account.
The introduction of the additional 2 percent surcharge for stamp duty land tax payable by non-residents who purchase a UK home now makes it beneficial to wait until one is a UK resident. Also, purchasing a UK home before UK residence is established may impact the specific SYB claim made under the ‘only home test’.
Reviewing the directorships is important as the UK residence of the individual may bring the entity within the UK tax net if the individual is a director controlling and managing the affairs of the company from the UK.
If companies hold large cash reserves, consideration should be given to pre-immigration dividends.
Loans between the individual and company should be reviewed, and any debt owed by the individual to the company should be repaid or written off before immigration. Debts can be taxed under the ‘benefit in kind’ rules.
Insurance policies should be reviewed as some types can give rise to draconian UK tax charges.
Some structures such as usufructs held overseas may cause uncertainty as they may not have an equivalent in English law and this may result in additional tax liabilities and impact the remittance basis claim.
Sati Virdee is an experienced tax professional specialising in all aspects of UK personal tax compliance and planning with a particular interest in tax planning for non-domiciliaries. She is a member of the Chartered Institute of Taxation and Fellow of the Association of Taxations Technicians. Contact Sati.
Citroen Wells’ partners include specialists with years of practical knowledge assisting their international clients including the financial problems facing property investors, dealers and developers. They offer a range of high quality accounting, tax, financial and business services.
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