Domicile - arriving to the UK

Introduction

This briefing note is intended to provide a general overview to non-UK domiciled individuals who are coming to the UK or have recently arrived to the UK. It is recommended that this note is read in conjunction with seeking tax advice.

Residence

Your UK tax residence is a significant factor in determining how you will be taxed in the UK. UK residence is determined by a statutory residence test. It categorises individuals into three broad categories: those that are clearly not resident in the UK (The automatic overseas tests), those who are clearly resident in the UK (the automatic residence test) and those who fall somewhere in the middle (The significant ties test). You may be non-resident under the automatic overseas test where you spend a minimal amount of time in the UK or work full time overseas. You may be UK resident under the automatic residence test where you spend more than half the year in the UK, work full time in the UK or your only home is in the UK. Where you do not meet the conditions of either of these two tests your residence position will be determined by comparing your ties to the UK to the number of days you spend in the UK. Assuming you are arriving to the UK for the first time, the ties to be considered are whether you: have UK resident family, have UK accommodation available for your use, do a substantive amount of work in the UK and spent more than 90 days in the UK in one or both of the previous tax years.

Domicile

If you are tax resident in the UK, you may be eligible to preferential tax treatment in the UK. The domicile rules are complex and you will need tax advice to assess whether you are domiciled outside the UK. Broadly, an individual’s domicile is where they have their permanent home. We can help you determine your domicile status by determining where you have the closest personal, family, social and economic ties and considering your future plans. It is possible to be domiciled outside the UK even if you have a UK passport.

If you are domiciled outside the UK you may be eligible to claim the remittance basis to shelter your income and gains from UK tax and protect your overseas assets from UK inheritance tax. In order to qualify for this preferential tax treatment, you must not be deemed UK domiciled. You may be deemed UK domiciled where you are:

• Born in the UK with a UK domicile of origin; or

• UK Resident in at least 15 of the previous 20 tax years.

Remittances

Where the remittance basis applies you will only pay UK tax on most types of foreign income or gains to the extent that you remit (bring) the monies to the UK. The definition of a remittance is broad. It not only includes direct remittances such as crediting offshore income and gains to your UK bank account but may also include indirect remittances such as using foreign income or gains to:

• Bring foreign assets, which were purchased using offshore income or gains, to the UK;

• Pay for flights that start or end in the UK; and

• Settle an offshore credit card which has been used to make purchases in the UK.

The remittance basis applies to you automatically where you have unremitted foreign income or gains of less than £2,000 in the tax year. This applies even if you are deemed to be domiciled in the UK. Where you qualify for the remittance basis to apply automatically you may still retain your personal allowance.

If the remittance basis does not apply automatically and you are not deemed UK domiciled, there is a cost associated with accessing the remittance basis. You will no longer be entitled to the personal allowance or annual exemption. If you have been resident in the UK for a long time, you will need to pay a remittance basis charge. The charge is:

• £30,000 per year for those who have been resident in the UK for at least 7 of the 9 previous tax years; and

• £60,000 per year for those who have been resident in the UK for at least 12 of the previous 14 tax years.

It is possible to elect to claim the remittance in certain years (for example when you have large offshore gains) and not in others.

Bank Accounts

A remittance is only taxable if it is or derives from foreign income or gains. You may remit the following without triggering a taxable remittance:

• Income earned and gains made before you became UK tax resident (“pre-arrival clean capital”);

• Income or gains that have been fully taxed in the UK; and

• Inheritances.

A common pitfall for non-UK domiciliaries is that where income and gains are credited to the same bank account which holds their pre-arrival clean capital it is not possible to remit the non-taxable clean capital without first remitting and paying UK tax on the post-arrival foreign income and gains. We can help by providing you with advice on how to structure your bank accounts in such a way that you are able to segregate the clean capital from your taxable income and gains and make tax free remittances to the UK.

Business Investment Relief

It is possible to remit your foreign income and gains to the UK without triggering a taxable remittance where you invest those monies in a UK company and qualify for business investment relief. The amount that can be claimed under this relief is unlimited. You must meet certain conditions to qualify including:

• The investment must be in a qualifying company.

• The investment must be in the form of shares or loans.

• The investment must be made within 45 days of bringing the money into the UK.

• You or any other relevant person (such as your spouse or minor children) must not receive a benefit from the investment. For example, the company must not provide you with use of its assets free of charge.

• On disposal of your investment, you must take your sale proceeds outside the UK within 45 days.

A qualifying company is one which:

• Carries on a commercial trade or is preparing to carry on a commercial trade within 5 years of the investment (“an eligible company”);

• Holds one or more investments in an eligible company; or

• Carries on a commercial trade and hold investments in an eligible company.

We can advise you on how to qualify for this relief.

Interests in Non-resident Companies and Trusts

In certain circumstances moving to the UK can import a non-resident company to the UK and bring it within the UK corporation tax net. In other circumstances the company may remain outside the UK corporation tax net but its income and gains may be taxable on you. The rules are complex and it is important that you seek tax advice.

If you are the settlor or beneficiary of an existing structure, it is important that you receive tax advice to make sure that the trust income and gains is not taxable on you.

If you do not have any trust structures in place, there are a number of advantages in settling an offshore trust. With the right advice the income and gains may not be subject to UK income tax or capital gains tax and the assets may not be subject to UK inheritance tax. The rules are complicated and it is important to seek tax advice.

Contact us to find out more.