The following tax tips cover a range of complex technical issues and only briefly outline ideas for saving UK tax that may potentially be of use. They are not intended to be exhaustive. This is a complex area of tax and it is important to take specific advice on your individual circumstances before undertaking any planning. If you are interested in finding out more, please contact us for specific advice on how to implement these ideas based on your personal circumstances.
- Organise your assets tax-efficiently
All UK resident individuals who are not domiciled here or who are not ‘ordinarily resident’ in the UK can claim the benefit of the remittance basis of taxation on their overseas income. This means that income from overseas assets is not taxable in the UK unless or until it is brought here.
However, since 6 April 2008, making such a claim means that all UK tax allowances are lost – increasing the tax bill on your UK income. Where a non-UK domiciled individual’s overseas income and capital gains are less than £2,000 in a tax year, the remittance basis will apply automatically but without automatic loss of allowances. Non-UK domiciled couples who organise their assets efficiently between them may be able to keep their annual individual overseas income and gains below £2,000 or transfer assets so that the income arises to only one spouse, to maximise the UK tax allowances available.
- Consider how long you are going to stay
The date from which you are treated as ordinarily resident depends upon your intentions when you arrive in the UK and whether you actually carry them out – for details see our UK tax residence decision tree. If, after 6 April 2008, you have been resident in the UK in more than seven of the previous nine tax years, in order to claim the benefit of the remittance basis described above, you will be required to pay a flat tax charge of £30,000 each year. If you do not claim the , all of your worldwide income will be taxable in the UK as it arises.
- Close offshore bank accounts and set up new income and capital accounts
Non-UK domiciled individuals are only taxable in the UK on remittances of offshore income and capital gains arising after they become resident in the UK. It is important to be able to clearly identify these sources, so any offshore accounts should be closed shortly before your arrival in the UK and new income and capital accounts set up. Arrangements should then be put in place so that any interest arising on the capital account should be credited directly to the income account. Remittances to the UK can then be made from the capital account without additional UK tax charges. It is important to take professional advice when setting up the accounts you will need as the rules are complex, and errors can result in unintended tax bills.
- Owning an offshore company
If you own 10% or more of the shares of an offshore company, any capital gains it makes while you are resident in the UK will be taxable on you in the UK. Transferring your shares to an offshore trust before you come to the UK will ensure that such gains are only taxable in the UK if the trustees make a capital payment to you in the UK.
- Review all investments outside the UK
Investments that have tax advantages in your home country may not have the same status in the UK so take advice on your position in advance. In addition, if you wish to bring investments into the UK, allocating them appropriately between spouses or civil partners can save significant amounts of tax. For example, allocating income producing assets to a non-working spouse will ensure that he or she can use the personal allowance to ensure no tax is paid on up to £6,475 (for 2010/11) of income.
- Are you entitled to temporary relocation expenses for employees seconded to the UK?
If you have been seconded to the UK by a non-UK resident employer for a period of two years or less, your employer (or the employer to whom you have been seconded) can provide "reasonable" accommodation expenses, and pay the associated utility costs tax free. This relief is available until it becomes clear that the two year period will be exceeded, but in this event, the relief will not be withdrawn retrospectively.
- Maximise your tax free travel allowance
Non-UK domiciled individuals, who do not have a recent history of UK residence prior to their arrival in the UK, are allowed an unlimited number of journeys between the UK and their normal country of residence, tax free, providing that the cost is met by their employer. In addition, the employer can also meet the cost of two journeys per tax year for the spouse and children, tax free.
If your employer is unwilling to pay for your trips home, but does provide other taxable benefits, consider asking your employer if he or she will agree to allow you to swap benefits. This save you tax and your employer may also save national insurance contributions (NIC).
- Separate capital gains and losses
For individuals claiming the remittance basis, overseas capital gains are only taxable if the proceeds are remitted to the UK but relief for overseas capital losses is limited, and only available by making an irrevocable election. You will need to weigh up whether such an election is beneficial in the long term, having regard to your future plans. Such losses must be set against gains remitted to the UK and unremitted overseas gains before any balance can be used against UK gains. It is therefore important to keep the proceeds of transactions which have produced the capital losses completely separate. The proceeds from such transactions can then be remitted to the UK with no additional UK tax consequences. The change in CGT rates on 23 June 2010 has led to some unusual complexities for the 2010/11 tax year.
- Keep your assets outside the UK inheritance tax net
Any assets that you own in the UK would fall into the UK inheritance tax (IHT) net if you were to die whilst owning them, irrespective of your tax residence. Where you have lived here long term, you may be deemed to be domiciled here for IHT purposes, which would mean that your worldwide assets would fall to be taken into account for UK IHT. This treatment continues for three calendar years after leaving the UK if you have stayed here long-term. Therefore, consider renting a property to live in rather than buying a UK home. You might also consider setting up a trust to hold your foreign assets outside the UK IHT net, although there may be other tax implications so expert advice should be taken.
- Take advantage of reciprocal social security agreements
The UK has reciprocal social security agreements with all EEC, and most other developed, countries. Under the terms of such agreements social security contributions are only payable in one of the contracting states. In certain circumstances, it is possible to obtain a certificate of coverage from your normal country of residence, and avoid both NIC and overseas social security liabilities on overseas earnings carried out under an overseas contract of employment. You should check if such an arrangement can be effective in your particular personal circumstances.
If you would like help and advice please contact us.
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