It is a very interesting time in the UK. With a Conservative majority result, following the General Election which took place on 12 December 2019, it is now very likely that Brexit will take place, although final details remain to be agreed.
Allowing for the current uncertainty, the UK remains an attractive destination for individuals to move to, for organisations and individuals to set up businesses in and for students from overseas.
CONSIDERATION OF THE ROUTE CHOSEN TO ENTER THE UK
Individuals granted a Tier 1 (Entrepreneur) visa or Tier 1 (Investor) visa under the rules that existed before/on 28 March 2019 are generally unaffected by the new rules which came into effect on 29 March 2019. For more information regarding the recent changes to UK immigration rules, please refer to Dixcart Article: IN580 Reforms to UK Investor Visa Category and New Entrepreneur Visa Routes.
A ‘visa national’, that is someone who requires a visa to enter the UK, will need to apply for a visa from the Visa Application Centre in his/her own country of nationality or residence prior to entering the UK. The visa application process varies from country to country. For further information on the visa application process please visit https://www.gov.uk/government/organisations/uk-visas-and-immigration.
A visitor can enter the UK for a short visit of up to six months for business or holidays (visa nationals need a pre-arranged visa, non-visa nationals do not). A visitor will need to show that he/she normally lives and works abroad, have no plans to base themselves in the UK and do not plan to work, produce goods or provide services in the UK. However, this is not a long term option and does not allow an individual to take up employment (although he/she may transact business of a limited nature, such as attending meetings and signing contracts).
Nationals of the European Economic Area (EEA)
EEA nationals and their family members have the right to reside in the UK; the situation may change following Brexit.
Non-EEA nationals need to obtain a residence visa.
The Points-Based System
For those coming to the UK on a longer term basis, UK Visas & Immigration (UKVI) which replaced the former UK Border Agency, applies a points-based system. Different rules apply to each “tier” of the system, but, in addition to the specific requirements applicable to each tier, there are usually English language and maintenance requirements. Unlike a visitor visa, a non-visa national requires to hold a valid UK visa to enter the UK on the Points-Based System.
- Tier 1
Certain categories under Tier 1 may well be applicable for investors and entrepreneurs. The investor category broadly requires individuals to invest at least £2m in specific types of investment in the UK. Entrepreneurs need to establish, a business in the UK, with the two relevant visas, open to new applicants since 29th March 2019, being the Start-up visa and the Innovator visa.
Generally the spouse and children (under 18) of someone who applies under one of these categories will be admitted to the UK for the same period as the applicant (they will need to apply for a dependants' visa). Dependants will also be able to work and study in the UK.
- Tier 2
If an individual is coming for a specific job, a visa as a “skilled worker” under Tier 2 may be more appropriate. Tier 2 entry is equivalent to the old work permit category. The individual needs to have a relatively high level of skill or qualifications and the employer will generally need to show that it has not been able to find an EEA citizen to fill the position.
The employer must also hold a Tier 2 sponsor licence (issued by UKVI) to “sponsor” workers. Graduates also need an employer to sponsor them in order to remain in the UK to work.
The above is only a broad outline and the rules are subject to continual change by UKVI.
Obtaining Indefinite Leave To Remain in the UK and/or British Citizenship
Those over the age 18, with the correct visa, and having been living in the United Kingdom for the last five years may be able to apply for settlement, also known as Indefinite Leave to Remain (ILR) in the UK. After a further year he/she can apply for naturalisation as a British citizen. If an individual has ILR and is married to or a civil partner of a British citizen, it is not necessary to wait a further year before being eligible to apply for naturalisation.
Workers being transferred within international organisations are no longer able to gain permanent residence in the UK.
On 6 April 2016 further restrictions were placed on Tier 2 migrants applying for ILR. These need to be taken into careful consideration, when deciding which route to follow when moving to the UK.
ADDITIONAL IMPORTANT ISSUES TO CONSIDER
Many foreign nationals over the age of 16 who are neither EEA nor Commonwealth citizens must register with the police within seven days of arrival, if staying in the UK for more than six months. This requirement will usually be apparent on an individual’s vignette in their passport, or their visa.
It is important for individuals to check whether they can legally drive in the UK using a foreign licence. The rules differ for each country and a list can be found at: https://www.gov.uk/driving-nongb-licence.
Importation of Personal Belongings
When an individual moves his or her “normal home” to the UK from a place outside the EU, complete relief from VAT and customs duty is generally available for all personal belongings brought into the UK, either on the person or separately, for a time period spanning, six months before to twelve months after, the individual’s arrival in the UK. The items must be for the individual’s personal use and must have been owned and used for at least six months outside of the EU, before they are imported.
If an individual moves to the UK from another EU country, no VAT or customs duty is levied on personal belongings.
Major reforms regarding how non-UK domiciliaries (“non-doms”) are taxed were implemented in April 2017. Additional advice should be requested.
Liability to UK tax is broadly determined by the application of the concepts of "domicile" and "residence".
UK law relating to domicile is complex and differs from the laws of most other countries. Domicile is distinct from the concepts of nationality or residence. In essence, you are domiciled in the country where you consider you belong and where your real and permanent home is. Domicile is a lengthy subject in its own right and is covered in our Information Note "What is the UK Remittance Basis of Taxation and how can it be of Benefit?" (IN523).
When an individual comes to live in the UK he/she will not generally become UK domiciled if they intend, at some point in the future, to leave the UK.
The UK introduced a statutory residence test in 6 April 2013. Residence in the UK normally affects a whole tax year (6 April - 5 April the following year), although, in certain circumstances “split year” treatment may apply.
For more details on residence please read the separate "UK Resident/Non-Resident Test" Dixcart information note.
An individual who is not domiciled in the UK can choose to have his or her non-UK income and gains taxed in the UK only to the extent that they are brought into or enjoyed in the UK. These are called ‘remitted’ income and gains. Income and gains made abroad, which are left abroad, are called ‘unremitted’ income and gains. Major reforms regarding how non-UK domiciliaries (“non-doms”) are taxed were implemented in April 2017. Additional advice should be requested.
The rules are complex and Dixcart have produced a separate Information Note: "What is the UK Remittance Basis of Taxation and how can it be of Benefit?" (IN523).
In summary, the remittance basis will generally apply in the following circumstances:
- If unremitted foreign income is less than £2,000 at the end of the tax year. The remittance basis automatically applies without a formal claim and there is no tax cost to the individual. UK tax will be due only on foreign income remitted to the UK.
- If unremitted foreign income is over £2,000 then the remittance basis can still be claimed, but at a cost:
- Individuals who have been resident in the UK for at least 7 out of the prior 9 tax years must pay a Remittance Basis Charge of £30,000 in order to use the remittance basis.
- Individuals who have been resident in the UK for at least 12 out of the prior 14 tax years must pay a Remittance Basis Charge of £60,000 in order to use the remittance basis.
- Anyone who has been resident in the UK in more than 15 of the previous 20 tax years, will not be able to enjoy the remittance basis and will therefore be taxed in the UK on a worldwide basis for income and capital gains tax purposes.
In all cases (except where unremitted income is less than £2,000) the individual will lose the use of his or her UK tax-free personal allowances and capital gains tax exemption.
For the current tax year (2019/2020) the UK top rate of income tax is 45%, on taxable income of £150,000 or more. Married persons (or those in a civil partnership) are taxed independently on their individual incomes.
As detailed above, if an individual is resident, but not domiciled, in the UK and chooses to be taxed on the “remittance basis” he/she is taxable in the UK, only on income that either arises in, or is brought to, the UK in any tax year.
Individuals resident and domiciled in the UK, or those who do not use the remittance basis, pay tax on all income worldwide on an arising basis.
Income may also be attributed to an individual through complex anti-avoidance rules whereby income arising anywhere in an offshore structure (e.g. trusts, companies etc.) may be deemed to be the income of either the individual who was ultimately responsible for creating the structure or attributable to each individual who receives any benefit from the structure.
Remittances within the structure are then treated as remittances by the individual and may be subject to income tax accordingly. Careful planning prior to arriving in the UK is needed to avoid unintentional remittances. In each case, attention must be paid to any relevant double taxation treaty.
Any remittances to the UK of income (or gains) used to make a commercial investment in a UK business are exempt from an income tax charge.
Capital Gains Tax
The UK rate of capital gains tax ranges from 10% to 28% depending on the nature of the asset and the income level of the individual. Married persons (or those in a civil partnership) are taxed separately.
As above if you are resident, but not domiciled in, the UK and choose to be taxed on the “remittance basis” you are liable to capital gains tax on gains made from the disposal of assets situated in the UK or from those which are outside the UK if you remit the proceeds to the UK. Non-sterling currency is treated as an asset for capital gains tax purposes and therefore any currency gain (measured against sterling) is potentially chargeable.
As with income, gains realised by certain offshore structures can be attributed to a UK resident individual under complex anti-avoidance rules; for example, gains realised by “closely controlled” non-UK companies (broadly companies under the control of five or fewer “participators”) are attributed to the participators individually.
Gains on the disposal of certain types of asset, such as a main residence, UK government securities, cars, life assurance policies, savings certificates and premium bonds may be relieved from capital gains tax.
Inheritance tax (IHT) is a tax on an individual's wealth on death and may also be payable on gifts made during an individual's lifetime.
Liability to inheritance tax depends on your domicile. If you are domiciled in the UK you are taxable on a worldwide basis.
A person who is not domiciled in the UK is taxable only on the transfer of assets situated in the UK (including transfers to successors/beneficiaries that occur on death). For inheritance tax purposes only, special rules apply. Any person who has been resident in the UK (for income tax purposes) for more than 15 years out of a continuous period of 20 years will be treated as being domiciled in the UK for IHT. This is called “deemed domicile”.
Certain lifetime gifts are exempt from inheritance tax provided the donor survives seven years and divests himself of any benefit. Strict rules have been introduced in cases where the donor retains or reserves a benefit out of the gift (e.g. gives away his house but continues to live in it). The effect of these changes will be to treat the donor for IHT purposes, in most cases, as if he had never made the gift.
Transfers of property between spouses of the same domicile status are exempt from inheritance tax, as are transfers by a spouse with a non-UK domicile to a UK domiciled spouse. However the amount that can be transferred by a UK domiciled spouse to a non-UK domiciled spouse without incurring an inheritance tax charge is limited to £325,000. It is, however, possible for a non-domiciled spouse to elect to be treated as domiciled, which would enable the full spouse exemption to be claimed. Once such a deemed domicile had been claimed the spouse would remain deemed domiciled until a number of years of non-residence had subsequently been re-established.
- Many people have the impression that it is difficult for foreigners to obtain permission to reside in the UK on a permanent basis. In our experience this is not the case, provided a suitable application is made at an early stage. In this way time spent in the UK can be used, as soon as possible, towards gaining unrestricted leave to reside in the UK.
- The UK tax system imposes comparatively high tax rates, but many well advised people of foreign origin, live in the UK for significant periods, quite legitimately paying little or no UK tax.
In this respect the UK differs from many other countries, such as the USA, where just the right to residence (without actual residence) automatically results in taxation of income and capital on a worldwide basis. The UK tax rules relating to residence and domicile have recently been tightened, but there are still many opportunities for a non-UK domiciliary to protect his or her tax position.
The keys to maximising the benefits available in the UK are:
- Retention of a non-UK domicile.
- Careful planning - preferably in advance of becoming UK resident. It is important, for example, that income arising from assets held abroad is diverted at source into segregated accounts. It is then possible to ensure that only clean capital (i.e. capital free of income and gains) is brought to the UK rather than taxable income being remitted.
If you require any additional information on this topic, please speak to Paul Webb at the Dixcart office in the UK: firstname.lastname@example.org to your usual Dixcart contact.