People relocating to the UK face a mass of tax rules and regulations to contend with, some less obvious than others. Here's a brief outline.

This news service is pleased to carry the following article from Robert Payne, managing associate in the private wealth team at law firm Ince. (More about the author below this article.) He writes about the salient tax rules that anyone thinking of relocating to the UK must understand. Much is changing and, of course, the UK is now out of the European Union. 

The editors are pleased to share these insights; they don’t necessarily endorse all views of guest writers and invite responses. Jump into the conversation! Email tom.burroughes@wealthbriefing.com 

The UK is an attractive jurisdiction to live in for various reasons; from its well-regarded education and healthcare systems, to its effective transport links within Europe and globally, its rich history and culture and its stable governance and respect for the rule of law. In addition to this, if you are moving to the UK and do not intend to settle here permanently you may, depending on your circumstances, benefit from an attractive tax system designed to encourage residence in the UK.

How does the UK tax system work?
UK taxes include income tax, capital gains tax, inheritance tax and stamp duty land tax (the latter of which may apply to UK property transactions).

The UK tax year runs from 6 April to 5 April the following year, unlike most other countries where the tax year runs in parallel with the calendar year.

1. Residence test
The UK’s residence test is set out in statute and allows you to determine with certainty whether you are UK resident or non-UK resident in each tax year (provided that the test is correctly applied).

The test applies to a number of criteria including, but not limited to:

•    The number of days (typically midnights) that you spend in the UK;
•    Whether you have certain family members who are resident in the UK;
•    Whether you have a home or accommodation in the UK and/or outside the UK;
•    Whether you work in the UK and/or outside the UK (and, if so, the circumstances of your employment); and
•    The number of days that you have spent in the UK in previous tax years and whether you have recently been UK resident.

Once the test is applied, you should then know that you are either conclusively UK resident or non-UK resident (for instance, based upon the country where you work full-time) or you may have a day count figure that, if exceeded in the UK tax year, will result in you being UK resident.

Being UK resident does not mean that you may not also be considered resident in another country at the same time. This may result in you being subject to tax in both jurisdictions and consideration may need be given to whether a tax refund could be obtained for tax paid on the same income or gains.

Split-year treatment
“Split-year treatment” may be available if you are arriving in or leaving the UK part way through a UK tax year. This may allow you to be treated as a resident in the UK for only part of the tax year up to the date of your departure. For instance, if you arrive in the UK on 1 January to commence employment in the UK, then split-year treatment may allow you to be treated as UK resident for a number of tax purposes only in the period of the tax year from 1 January, rather than for the entire tax year starting on the prior 6 April. 

However, in order to claim split-year treatment you must meet strict conditions. In addition, this treatment is not available for all UK tax purposes and needs to be formally claimed in a UK tax return. Anyone considering using this treatment should seek advice before relying upon it.

2. Domicile
If you are deemed UK tax resident, the way in which the UK’s tax rules apply to a UK tax resident person depends upon whether you are domiciled in the UK or not. 

Very broadly speaking, the UK considers every individual to have a domicile. You will inherit a domicile “of origin” from your parents (if your parents were married, this will be from your father). If you moved with your parents or guardians as a child, then your domicile may change to the new country of residence (domicile “of dependence”). Once you are an adult, you can acquire a new domicile “of choice” by becoming resident in that country and deciding to remain there permanently/indefinitely.

UK resident and UK domiciled individuals pay UK income tax, capital gains tax and inheritance tax on all of their assets, owned anywhere in the world. Those who are UK resident and non-UK domiciled may benefit from a different tax regime, known as the remittance basis of taxation.

The remittance basis
If you are UK resident, non-UK domiciled and not UK “deemed domiciled” (see below), the remittance basis of taxation allows for the income and gains arising on your non-UK assets to be received and enjoyed free of UK tax by you, unless they are brought or “remitted” to the UK. 

UK resident and non-UK domiciled individuals, who have not resided in the UK for 15 of the prior 20 UK tax years, may enjoy the remittance basis of taxation. This is claimed within your tax return and may be opted into for some tax years and not others.

Initially, the remittance basis may be claimed without any cost (although a claim can have minor disadvantages that may need to be considered). After seven years of UK tax residence (out of the previous nine tax years), there is a financial charge for claiming the remittance basis. This increases after 12 years of UK tax residence (out of the previous 14 tax years) and after 15 years of UK tax residence it is no longer possible to claim this favourable tax treatment. This is because, after such a 15-year period, you would be “deemed domiciled,” and treated as effectively UK domiciled for most tax purposes, regardless of your state of mind or intention.

This is a complex area, so you should seek advice if you think you may be eligible. It is easy for mistakes to be made and careful consideration is typically required.

Finally, if you are moving to the UK, and you were born in the UK with a UK domicile of origin, you will immediately be treated as UK domiciled upon returning to the country. The remittance basis will not be available even if you have acquired a non-UK domicile of choice. Special anti-avoidance rules may also apply to those who have been UK resident in recent tax years (such as the temporary non-resident rules and the deemed domicile rules) so as to limit the available tax benefits.

3. Pre-residency planning
As mentioned, if you are moving to the UK, you may be able to claim non UK-domiciled status, if you currently have a non-UK domicile and at no point intend to settle in the UK permanently/indefinitely.  

If you are planning to become a UK resident, and think that you may be non-UK domiciled, it is imperative that you seek professional advice to confirm this and in order to maximise the benefits of the potentially favourable tax treatment that may be available to you.

Other steps that should be considered prior to UK residence include (but are not limited to):

a.    Determine the precise date when you will become a UK resident, whether split-year treatment may be available and beneficial, and whether you have taken all recommended steps;

b.    Review the assets that you own and consider whether you may wish to take any action in relation to them before becoming UK resident. This includes considering existing trusts you have established, or may be a beneficiary of, and any corporate holdings;

c.    Consider whether any action is needed in relation to assets that you own that may be standing at a significant gain since acquisition (especially if it is likely that you may dispose of these whilst UK resident);

d.    Consider whether any changes should be made to your asset ownership arrangements, especially portfolio assets, to provide for payment of your future UK expenses tax efficiently and therefore benefit from the remittance basis;

e.    Consider how you will meet future UK and non-UK expenses, and from which sources; and

f.    Consider how UK property purchases should be funded (if you will not rent for the entire period of UK residence), how property purchase funds may be brought to the UK and how owning UK property may affect your inheritance tax exposure.

The opportunities to improve such matters may be lost once you are UK resident. Therefore, timing and obtaining advice well in advance of UK residence is crucial.

Summary
The UK is an attractive location for a number of factors; including the tax regime that applies to those with a foreign domicile. In view of the level of complexity and the number of possible pitfalls that exist, you should carefully consider taking advice at an early stage if you may become UK resident.

About the author

Robert Payne is a managing associate in the private wealth team at Ince. He advises clients on UK tax, estate planning and succession matters. Their affairs often involve international elements and Robert is well-versed in coordinating these matters. Having worked in-house for a trust company, he has a keen understanding of the issues facing professional trustees. His experience includes advising clients on UK residence and domicile matters, including those arriving in the UK, those leaving the UK and those becoming deemed domiciled in the UK. He also advises on family governance issues and helps clients to structure their assets for future generations.