Moving to the UK
A briefing note on the UK tax implications
for high net worth individuals
This briefing note provides an overview of the UK
tax issues that high net worth individuals should
consider in the light of their wish to spend more
time in the UK or move certain family members
to the UK.
Who we are
Taylor Wessing’s Private Wealth practice has
been recognized as a market leader for several
years. We offer a fully integrated international
service for individuals and their families as well
as their businesses who require expert and
coordinated advice on their personal wealth
holding structures, tax and estate planning,
commercial investments, family and corporate
governance and reputation management issues.
We focus on our client’s objectives and concerns
and then propose and implement the appropriate
legal solution delivered with personal service with
institutional quality.
UK residency and taxation
The UK continues to be an attractive jurisdiction
for individuals and families who are looking to
move away from their home jurisdictions.
The UK residency and domicile status of an
individual determines his exposure to UK direct
taxes (namely income tax, capital gains tax and
inheritance tax).
The Statutory Residency Test (SRT)
The SRT came into force on 6 April 2013 and sets
out the test to determine the UK residency of an
individual after 5 April 2013.
Under the new rules an individual can be sure
of being non-UK tax resident if he meets the
“automatic overseas test”; failing which, he
will be UK tax resident if he is (a) automatically
UK resident, or (b) if has sufficient ties or
“connections” with the UK.
The rules apply differently according to whether
or not the individual has been UK resident in the
last three tax years (i.e. whether he is classified
as a “leaver” or an “arriver”).
A day is generally counted if the individual
is in the UK at midnight (although there are
exceptions to this rule such as where the
individual is in transit through the UK or where
his presence in the UK is due to exceptional
circumstances beyond that individual’s control).
Automatic Overseas Test
An individual will be conclusively non-UK resident
for a tax year if (a) he is an arriver and he spends
fewer than 46 days in the UK in the relevant
tax year; (b) he is a leaver and he spends fewer
than 16 days in the UK in the relevant tax year;
or (c) he has a full-time contract of employment
overseas and he spends fewer than 31 days
working in the UK and fewer than 91 days
generally (working and otherwise) in the UK in
the relevant tax year.
Automatic UK Residence Test
An individual will be conclusively UK resident for
a tax year if (a) he spends 183 days or more in
the UK in the relevant tax year; or (b) he satisfies
the UK home test (which in very broad terms will
be satisfied if he has a home in the UK for more
than 90 days in the relevant tax year and he is
present in that home for at least 30 days in the
relevant tax year and whilst he has that home, he
either has no overseas home or he spends less
than 30 days in his overseas home in the relevant
tax year).
Sufficient Ties Test
If an individual is not conclusively UK resident
under the Automatic UK Residence Test, he may
be UK resident in a tax year under the “Sufficient
Ties Test”. For the purposes of that test, the
following ties with the UK will be taken into
account:
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UK-resident family;
accommodation in the UK;
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substantive work in the UK (whether
employment or self-employment);
UK presence in the previous tax years (i.e.
spending more than 90 days in the UK in
either of the previous two tax years); and
more time in the UK than any other single
country (this tie is only applicable for
“leavers”).
The legislation includes some detailed provisions
on each of these ties which would need to be
considered in more detail in the light of the
individual’s circumstances.
The number of days in the UK to make an
individual UK resident in the relevant tax year
will depend on the number of ties that individual
has with the UK and whether he is an arriver or
a leaver. The following tables illustrate the link
between the ties and days spent in the UK, for
both arrivers and leavers.
Arrivers
Days spent in the
UK
Impact of ties on residence
status
Fewer than 46 days
Non-UK resident
46 - 90 days
Resident if four ties (otherwise
non-UK resident)
91 – 120 days
Resident if three or more ties
(otherwise non-UK resident)
121 – 182 days
Resident if two or more ties
(otherwise non-UK resident)
183 days or more
UK-resident regardless of ties
Leavers
Days spent in the
UK
Impact of ties on residence
status
Fewer than 16 days
Non-UK resident
16 - 45 days
Resident if four ties (otherwise
non-UK resident)
46 – 90 days
Resident if three or more ties
(otherwise non-UK resident)
91 – 120 days
Resident if two or more ties
(otherwise non-UK resident)
121 – 182
Resident if one or more ties
(otherwise non-UK resident)
183 days or more
UK-resident regardless of ties
Split year
Normally if an individual is resident in the UK for
any part of the UK tax year then he will be taxed
as a UK resident for the whole of the tax year.
The SRT now provides specific provisions to deal
with this situation and if an individual is going to
be caught by this, then he should seek formal
advice. The UK tax year runs from 6 April to 5
April.
Exposure to UK tax and the
remittance basis
An individual will have access to a favourable UK
tax regime, known as the “remittance basis” of
taxation, even if he does become resident in the
UK, provided that he is (and remains) domiciled
outside the UK.
Domicile
Domicile is an important concept under English
law for determining the liability of an individual to
UK income tax (IT), capital gains tax (CGT) and
inheritance tax (IHT), although it is not defined in
UK tax legislation. It is only possible to have one
domicile at a time, and for English law purposes,
every individual is domiciled somewhere.
Domicile is not the same as residence and
the place where an individual is domiciled is
not necessarily the place he has his habitual
residence or citizenship. A person is born with a
domicile of origin, which is usually the domicile
of his father at birth. A domicile of origin can be
displaced by acquiring a domicile of dependency
(for example, if the individual’s father acquires
a new domicile whilst that individual is under
16) or a domicile of choice. A domicile of
choice can be acquired if an individual resides
in another country with the intention to reside
there permanently or indefinitely. If a domicile
of choice is lost then the individual’s domicile of
origin will revive, unless a new domicile of choice
is obtained. An individual can remain non-UK
domiciled provided he does not form an intention
to remain permanently or indefinitely in the UK.
However, whilst an individual can retain a nonUK domiciled status for IT and CGT purposes,
for IHT purposes a person is deemed domiciled
in the UK once he has been resident for 17 out of
the previous 20 tax years.
IHT is charged on the value of property that an
individual owns at the date of his death (including
gifts made less than seven years before death).
IHT is payable at a rate of 0% up to the amount
of the general IHT “exemption” (known as the
nil-rate band and currently £325,000) and at
a current rate of 40% on the balance in the
absence of any available IHT reliefs such as the
spouse exemption. If an individual is neither
domiciled nor deemed domiciled in the UK, IHT
is only charged with respect to assets situated in
the UK on death in the absence of any available
IHT reliefs. If however an individual is domiciled
or deemed domiciled in the UK then IHT will
be charged on their worldwide assets on death
subject to any available IHT reliefs.
The remittance basis of UK taxation
In relation to IT and CGT, an individual who is
UK resident but non-UK domiciled can either be
taxed on the “arising basis” or the “remittance
basis”.
The arising basis means that an individual will
be taxed in the UK on his worldwide income
and gains in the tax year in which the income or
gain arises regardless of whether the funds are
brought to the UK.
If an individual claims the remittance basis of
taxation he should not have to pay IT or CGT
on non-UK income and non-UK capital gains so
long as they are not remitted to the UK. He will
still be subject to IT and CGT on income from a
UK source (for example, interest on a UK bank
account) and capital gains realised on the sale of
UK assets (for example, the sale of shares in a
UK company).
A non-UK domiciled individual who has been
resident in the UK for seven out of the previous
nine tax years will need to pay an annual charge
known as the “remittance basis charge” of
£30,000 in order to be able to elect to be taxed
on the remittance basis for any relevant tax year.
Where an individual has been resident for 12
out of the previous 14 tax years this remittance
basis charge increases to £50,000 per year. An
individual can make a decision each year as to
whether it would be beneficial to pay the annual
charge to be taxed on the remittance basis. If
the individual does not elect to be taxed on the
remittance basis (and pay the remittance basis
charge if applicable) then he will be subject to UK
tax on the arising basis for the relevant year.
The definition of what constitutes a “remittance”
to the UK is very broad and the rules are
extremely detailed and therefore any individual
considering a move to the UK should take
appropriate advice in the tax year before he
becomes UK tax resident.
Pre-arrival planning
Given the favorable remittance basis of UK
taxation available to non-UK domiciled individuals
who are UK tax resident, it is essential that high
net worth individuals who wish to move to the
UK or send family members to live in the UK,
take adequate advice before they come to the
UK so that they understand the consequences
of becoming UK tax resident and the remittance
basis of taxation and consider suitable pre-arrival
planning and implement it in the tax year before
they become UK tax resident to ensure that their
exposure to UK tax once they are UK tax resident
is minimised as much as possible. For example if
an individual wishes to move to the UK in August
2015 then he should seek advice and implement
all of his pre-arrival planning before 6 April 2015.
Two relatively straightforward strategies that our
clients usually implement are:
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“Ring fencing” income or gains which have
arisen before a non-UK domiciled individual
became UK resident. In general terms, all such
income and gains can be brought into the UK
without incurring a charge to UK tax, provided
that the funds are kept separate from post
UK residency income or gains. Any pre-arrival
funds that the individual is planning to bring
into the UK once UK tax resident should
be segregated and proper UK and offshore
banking arrangements need to be put in
place to aid this. For example, any offshore
accounts should be structured so that interest
earned once UK tax resident on segregated
pre-UK residency funds is directly mandated
to a separate income account outside the UK.
Rebasing assets standing at a gain – if
an asset is sold after a non-domiciled
individual becomes UK resident, then he is
liable to be taxed on the whole of the gain
including appreciation which occurred prior
to becoming UK resident on the remittance
basis. If instead the asset is sold before
the start of the tax year in which the nondomiciled individual becomes UK resident
then the sale proceeds may be used in the UK
once he is UK tax resident (provided that they
are not mixed with post-UK residency income
or gains) free of tax.
Key contacts
Sanjvee Shah
Partner, London
+44 (0)20 7300 4059
[email protected]
Other matters on which pre-arrival planning
advice should be sought include:
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UK tax compliance obligations
the structuring of the UK residential property
acquisitions
the merits of transferring assets to one or
more offshore trusts for succession planning,
asset protection and UK tax advantages
reviewing the arrangements of any offshore
companies where the individual is on the
board of directors or a shareholder to ensure
that these companies will not become
inadvertently UK tax resident once he is UK
tax resident
reviewing any existing offshore holding
structures from which the individual may
benefit once he is UK tax resident
Our service at Taylor Wessing is forward thinking
and tailor made to our clients and our advice
depends on the residence and domicile status of
our clients.
Please do not hesitate to contact one of our
private client specialists within the Private
Wealth Group for any further information about
our services and how we may be able to assist
you.
Nick Warr
Partner, London
+44 (0)20 7300 4232
[email protected]
Europe > Middle East > Asia
www.taylorwessing.com
© Taylor Wessing LLP 2014
This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing’s international offices operate as one firm but
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