Here, International Tax partner Sonal Shah, shares five key tips for international tax when moving to the UK.
It is important to understand and establish the date when an individual’s/your tax residency status would commence prior to moving to the UK. This will depend on the number of days an individual spends in the UK during the tax year in question, together with considering a number of factors spanning accommodation, work and family.
The application of the Statutory Residence Test (SRT) is crucial to determine the UK tax residency start date which in turn will determine the UK tax obligations for that individual. The application of the split year rules could also be considered should an individual move to the UK part way through the year.
Once UK tax residency status has been established, it is important to establish an individual’s domicile status. This is different to residency and there are a number of factors involved in determining one’s domicile status, therefore it is important to understand one’s domicile right at the very outset. Linking one’s domicile status to residency is then the ultimate goal. There are a number of advantages if an individual is considered to be UK resident non-UK domiciled and equally there are some cons, but careful planning can lead to a great result.
Clear segregation of funds prior to moving to the UK is crucial. Income, capital gains and clean capital must be clearly segregated or “ringfenced” so that it is not mixed with foreign income and gains after an individual has become UK tax resident. Failure to do so would result in the individual being subject to complex mixed fund rules and potentially unforeseen and severe tax liabilities.
In the event that an individual is considered to be tax resident in two jurisdictions, it is important to apply the double taxation agreement (DTA) with that particular country carefully, to understand how each category of income and/or gains would be taxed.
Furthermore, it is also important to consider whether the tie breaker rules according the DTA could be applied and what that means for the individual who could be considered to be dual resident. Different types of income will invariably be subject to different treatment under the relevant DTA.
It is beneficial to consider any inheritance tax planning (IHT) prior to moving to the UK so that assets can be structured appropriately and carefully ringfenced for the future generation. The creation and use of offshore trusts need expert advice and can be extremely tax efficient, not forgetting important non-tax benefits such as avoidance of probate. UK IHT is a whopping 40%, so good planning both before and after arrival in the UK can save significant amounts of IHT.
If you would like more information on any of the above, speak to our International Tax team today.