With the United Kingdom preparing to abolish the non-domiciled (“non-dom”) tax status from April 6, 2025, many Australians are considering the tax impact of returning home. See our article Australians Living In The UK: How The New “Non-Dom Tax” Changes May Affect You.

Whether you make the decision to return home before the tax changes take place, or you remain in the UK until after the new laws impact you, when you return home it is important to manage your UK tax exit obligations.

Simple Checklist For Australians Returning From The UK

1. Confirm UK tax residency status and apply for split-year treatment (if eligible).

2. File a final UK tax return and settle any outstanding liabilities.

3. Plan capital gains tax-efficiently (consider selling non-UK assets after leaving to avoid UK CGT).

4. Transfer UK savings and close unnecessary UK bank accounts.

5. If keeping UK property, register with HMRC’s Non-Resident Landlord Scheme and  ensure that you continue to file UK tax returns as a non-resident.

6. Seek advice on Australian taxes and ensure your Australian tax return is prepared in accordance with Australian tax residence rules, including declaring worldwide income.

7. Review foreign asset disclosures and pension tax treatment with the ATO.

8. Be mindful of the 10-year UK IHT rule for former UK residents9- Use the UK-Australia Double Tax Agreement to mitigate double taxation.

The Key Differences For Australians Returning To Australia Before vs After The UK’s New Non-Dom Rules (April 6, 2025)

The timing of departure from the UK will significantly impact an Australian’s tax obligations in both the UK and Australia. The key differences arise in capital gains tax (CGT), inheritance tax (IHT), and foreign income treatment.

1. UK Capital Gains Tax (CGT) Implications On Worldwide Assets

The Key Difference for CGT purposes is that leaving before April 2025 allows Australians to sell non-UK assets CGT-free under the remittance basis. Individuals leaving after April 2025 may still owe UK CGT on global assets if they were UK residents for more than 4 years.

2. UK Inheritance Tax (IHT) Exposure

The key difference for IHT exposure is that before April 2025 a non-domiciled resident does not have their worldwide assets caught in UK IHT rules when they leave the UK. Leaving after April 2025 can expose them to UK IHT for up to 10 years if they were a UK tax resident for a decade or more.

3. UK Tax On Foreign Income And Remittances

Non-domiciled individuals who leave before April 2025 avoid retrospective taxation on foreign income and remittances. Leaving after April 2025 could mean more UK tax on past foreign income, depending on transition arrangements.

4. Remittance Of Foreign Income Into The UK

Prior to 2025 a non-domiciled resident would avoid UK taxes on foreign income if they did not bring this income into the UK.

Under the new UK tax rules all foreign income is taxable in the UK after the first four years, regardless of whether the income is brought into the UK or not. It is important to ensure that your Australian income isn’t brought into the UK prior to 6 April 2025 if you want to avoid UK taxes on that income.

After 6 April 2025 you may be exempt from paying UK taxes under the four-year exemption rule. If you are not exempt under this rule you may be able to bring previously untaxed foreign income into the UK under a reduced tax rate if a decision to designate this income for remittance into the UK is made before the end of the 2028 financial year. Foreign income earned from 6 April 2025 (other than income earned under the 4 year exemption rule) will be taxable, regardless of whether it is remitted into the UK or not.

5. UK Property And Rental Income

The rules remain similar in that UK rental income will continue to be taxable in the UK as the country of source, as well as being taxable in Australia as the country of residence. However, the CGT rules may be stricter for UK purposes for former UK residents, meaning that the key difference is that an individual returning to Australia may see better CGT outcomes if they sell their UK property before they leave. As this will depend on specific factors, it is important to obtain correct tax advice for your specific situation prior to making your move back to Australia.

 6. Australian Tax Treatment Upon Returning

Regardless of when an individual returns, Australians:

a) Will immediately become Australian tax residents and be taxed on their worldwide income for Australian tax purposes.

b) Must declare UK rental income, pension withdrawals, and foreign bank accounts.

c) May claim foreign tax credits for UK tax paid on income still sourced in the UK.

Leaving before April 2025 gives returning Australians more flexibility to clear UK tax obligations before Australian tax residency resumes.

Overview Of Tax Impact Of Australian Leaving Before Or After April 2025

Summary

Australians who leave the UK before April 6, 2025 will avoid new UK tax burdens on foreign assets, income, and IHT. Anyone staying past April 2025 or moving to the UK after this date, may face unexpected UK tax liabilities which may continue even after leaving.

These changes mark a significant departure from the UK’s previous tax regime. Understanding these changes is important when assessing a decision around how long you plan to live in the UK, and how this may impact your current tax obligations, as well as the tax impact on your estate.

Whether you are still making your decision on living in the UK, or need to understand the tax consequences of your decision, it is important to engage an international tax specialist who can provide up to date and accurate information tailored to your specific situation.

The United Kingdom is prepared to abolish the non-domiciled (“non-dom”) tax status from April 6, 2025. This is a significant reform which will mean that all UK residents, regardless of their domicile, will be taxed on their worldwide income.

Current Tax Rules In The UK For Non-Domiciled Individuals

Under the current tax rules Australians who live in the UK are taxed according to their domicile status and the nature of their income. An Australian who is not domiciled in the UK may make a claim to be taxed on foreign income on a remittance basis, meaning you are only taxed on any UK-source income and gains plus any foreign income remitted to the UK.

They are also able to return home to Australia without worrying about any ongoing impact of UK taxes for anything other than assets that remain in the UK.

How The UK Tax Rules Are Changing

There are a number of key aspects of the proposed changes which could have a significant impact on Australians in the UK. These include:

1. Abolition Of The Remittance Basis

Under the new system, individuals will be taxed on their worldwide income, similar to the way that Australian residents are taxed on their worldwide income. This means that while living in the UK you will need to include any income that you earn from Australian investments or income sources in other countries, even if you don’t bring that money into the UK.

2. Introduction Of A Four-Year Foreign Income And Gains Regime

On the positive side, new arrivals to the UK, who have not been UK tax residents in the previous ten consecutive years, will benefit from a new four-year period during which they receive 100% relief on foreign income and gains. This relief applies irrespective of whether the income is remitted to the UK. This effectively allows individuals to live in the UK for 4 years without having to worry about the consequences of bringing in their overseas income, and may make it more appealing for Australians to live in the UK on a short term basis that does not exceed this four year period. 

3. Imposing Inheritance Tax (IHT) Even After Departure From The UK

The domicile-based system for IHT will be replaced with a residence-based system. In addition, expats who return to Australia after the new rules are in place may be exposed to IHT for up to 10 years after leaving the UK. This makes estate planning more complex for any Australians living in or returning from the UK.

4. Capital Gains (CGT) On Worldwide Capital Gains

Australians who previously benefited from the remittance basis will now face UK CGT on all gains from worldwide assets, even if those gains are not brought into the UK.

Transitional Rules

There are a number of transitional rules that will help ease UK residents into the new tax system.

Individuals who have previously been non-domiciled and used the remittance basis of taxation will have the option to value their foreign capital assets as of April 5, 2017. This creates a new capital base value to avoid CGT applications on the increase of value up to that date.

Current non-dom individuals will also have access to a transitional discounted tax rates on their previously unremitted foreign income and gains until the 2028 tax year.

Practical Steps To Take If You Stay In The UK After April 6, 2025

Australians who are currently non-domiciled residents of the UK, who decide to stay in the UK, should take practical steps to minimise their UK tax exposure and optimise their financial position. Key actions include:

1. Revaluing assets held outside the UK prior to April 2017 for CGT purposes.
2. Selling assets before April 2025 if advantageous.
3. Utilising transitional tax reliefs by obtaining the right advice from a tax specialist.
4. Maximising the four-year tax exemption (if eligible).
5. Reviewing investment strategies, retirement planning and estate planning strategies to factor in the new tax consequences of remaining in the UK.
6. When assessing the timing of potentially returning to Australia, consider the impact of Inheritance taxes if you live in the UK for 10 years or more.
7. Keep clear records and obtain up to date tax advice to mitigate tax consequences.

It is important to engage an international tax specialist to complete a personalised assessment for tax planning in your specific situation.

Revalue Australian (And Other Foreign) Assets

You should obtain formal or independent valuations for properties, shares, and other investments as of 6 April 2017.

The UK is offering a one-time rebasing relief, allowing individuals who previously used the remittance basis to revalue their foreign assets to April 6, 2017, for Capital Gains Tax (CGT) purposes. This means only gains accrued after April 6, 2017, will be subject to UK CGT when the asset is sold. This relief is not applicable if you were deemed to be domiciled at some point between 6 April 2017 and the introduction of the new tax laws on 6 April 2025.

Plan Asset Sales Before April 2025

If you are planning to sell Australian assets:

a) Consider if there is an overall benefit in selling these assets before April 6, 2025 to avoid UK CGT.

b) If selling after April 2025, use the rebasing relief to reduce taxable gains.

c) Review whether holding assets via a trust or corporate structure might help in specific cases. If so, it may be possible to sell individually owned assets to a corporate structure that you control prior to April 6 2025.

After April 2025, all worldwide capital gains (including on Australian assets) will be taxed in the UK unless you are living in the UK for less than 4 years.

Use Transitional Tax Discounts

Take advantage of any transitional rules where possible.

a)    If receiving Australian rental income, dividends, or business profits, consider bringing forward earnings to take advantage of this discount.

b) If withdrawing funds from an Australian trust or investment portfolio, consider timing withdrawals within this period.

For tax relief that is based on timing and access to transitional rules it is important to obtain correct and up to date tax information from the relevant tax specialist.

Consider How To Utilise The Four-Year Foreign Income And Gains Exemption For New Arrivals

If you have not been a UK resident in the previous 10 years then you can utilise the new four-year foreign income exemption.

a) New and recent arrivals in the UK should utilise this period of exemption to plan and structure income sources for optimal tax outcomes.

b) Where you have control over timing of income, consider triggering capital gains or significant foreign income events within the four-year exemption period.

Notably, under the new rules the four-year exemption applies regardless of whether the funds are brought into the UK. This means that any Australians who were not UK tax residents in the previous 10 years will not be taxed on foreign income or gains for their first four years in the UK. This gives Australians a good opportunity to live in the UK on a short-term basis without being impacted by the new rules.

Review Australian Superannuation And Pension Taxation

Engage a tax specialist to complete tax planning strategies for your retirement and review any current and upcoming lump sum or pension income.

a) Obtain long term advice on tax planning strategies that take into consideration the way the new rules will impact any UK tax on lump sum withdrawals or pension income from Australian super funds.

b) If applicable, time superannuation withdrawals strategically before tax rates increase.

c) Consider the types of investment income you are currently earning from Australia. Understanding the tax consequences of these changes gives you the opportunity to assess optimising your ongoing investment and income strategies.

With the tax rules changing, it is important to understand how this could impact your long-term and immediate investment and retirement plans so you can make informed decisions about your finances.

Plan For UK Inheritance Tax (IHT) On Worldwide Assets

The UK imposes an inheritance tax (IHT). Under the new rules IHT will apply to worldwide assets.

a) Consider trusts or corporate structures to protect assets from UK IHT.

b) Review wills and estate planning to align with both UK and Australian tax laws.

c) If planning to leave the UK, remember IHT exposure may continue for 10 years after departure.

Under the new rules, individuals who have been a UK tax resident for 10+ years will be subject to IHT on worldwide assets. This includes Australian property, shares, and businesses. It is therefore important to revise your inheritance strategies if you will be a long term UK tax resident. You should also consider the impact of IHT when assessing timing for making a move back to Australia, as you may be able to avoid IHT by making an earlier move.

Maximise Double Tax Relief And Tax Credits

Talk to an international tax specialist to ensure you have appropriate, current and up to date tax planning strategies in place that consider the new rules. With the UK taxing worldwide income it will be more important to utilise double taxation relief provisions to minimise your tax exposure.

a) Keep detailed tax records to claim foreign tax credits efficiently.

b) Engage an international tax advisor to structure investments efficiently.

The UK-Australia DTA can mitigate double taxation, but relief must be claimed properly as certain income types (e.g., rental income) may still be taxable in both countries.

In Summary 

The new rules will have a significant impact on Australians living in the UK, both while they are living in the UK, and when they return home. For more about the tax implications of returning to Australia under the new rules see our article Australians Living In The UK: Returning To Australia Under The New Non-Dom UK Rules.

While the new rules may reduce the tax impact of residing in the UK for a period of less than four years, long-term residents will now be liable for UK taxes on their worldwide income. This is a significant departure from the current income remittance rules and will mean any Australian currently residing in the UK should seek tax advice regarding their worldwide assets and investments. 

The current remittance basis tax regime will be replaced by a residence based regime from 6 April 2025.

Foreign Income And Gains

Existing non domiciled individuals who have been resident in the UK for less than 4 years will be able to take advantage of the new scheme which provides for tax free foreign income and gains for up to the first four years of residence.

Longer term UK residents (greater than four years) will have to pay tax on all foreign income and gains from 6 April 2025.  However, transitional arrangements will mean that:

• For the 2025/26 tax year they will only pay UK tax on 50% of their foreign income arising in that year;
• Foreign income and gains arising before 6 April 2025 will be able to be remitted to the UK in the 2025/26 and 2026/27 tax years at a temporary 12% tax rate;
• Foreign assets will be able to be re-based to 5 April 2019 value for disposals after 6 April 2025
• Foreign income and gains arising on non-resident settlor interested trusts will not be taxed unless the income and or gains are paid to UK residents.

Overseas Workdays Relief

Non-UK domiciled individuals are currently able to claim tax relief for earnings from duties overseas for up to three years of UK residence – subject to not remitting the funds to the UK.

The Government is to consult on reforming the current regime.  However, it has been confirmed that the basic relief will remain, but the restriction on remittance will be removed.  This will be a welcome simplification for many.

Inheritance Tax

The Government will consult on changes to the inheritance tax regime in light of removing domicile and changing to a residence based regime.

However, to provide certainty, they have confirmed that the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change. 

Summary

It is clear that the Government’s intention is to encourage capital inflows into the UK rather than provide disincentives to do so.

However, many long term non domiciled UK residents will be significantly impacted from 6 April 2025 – although the 50% restriction on income and gains subject to tax for that year will be a welcome relief.

Less clear is the position around inheritance tax.  We would welcome clarification in this regard at the earliest opportunity.

Richard Feakins, Director of CST London, recently contributed to an article on the Australian Financial Review – UK’s new tax slug could force expat Aussies home – read Richard’s contribution here.

The Chancellor Rishi Sunak presented his second Budget on Wednesday 3 March 2021. Against the backdrop of COVID and a 10% contraction in the economy, he set out a three step plan to ‘…protect the jobs and livelihoods of the British people’.

The Budget introduced a new super deduction for capital investment, an announcement on the creation of freeports, further support for skills and a focus on job protection and creation – all of which advance the Government’s ‘levelling up’ agenda.

Our summary focuses on the tax measures which may affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please contact us for advice.

Download UK Budget 2021 Summary

Current Government rules and guidance around quarantine and travel restrictions could lead to an individual staying longer in the UK than originally intended – leading to an adverse impact on their tax residence status as a result of the day counting tests under the UK’s statutory residence test (SRT).

Planned changes to the SRT to allow for the COVID-19 situation have now been enacted into UK tax legislation which will alleviate many (but not all) situations that international workers now find themselves in.

Broadly, the amendments mean that days spent in the UK will not count towards certain elements of the day count tests where:

• The day falls within the period 1 March 2020 to 1 June 2020.
• The individual is in the UK as a medical/healthcare professional for purposes connected with the detection, treatment or prevention of coronavirus disease, or for purposes connected with the development or production of medicinal products (including vaccines), devices, equipment or facilities related to the detection, treatment of prevention of coronavirus disease; and
• In the tax year under review (being either 2019/20 or 2020/21) the individual is resident outside the UK.

Unfortunately, this does not provide much comfort for those working outside the medical or research professions.

However, the existing tests provide that where up to 60 days are spent in the UK for ‘exceptional circumstances’ these are disregarded for the purposes of the tests.

Exceptional Circumstances

Under HMRC Guidance (not legislation) there is existing limited relief for situations where days are spent in the UK and the circumstances are considered ‘exceptional’. The SRT consists of a number of days counting tests for specific situations (derived from long standing case law) and HMRC’s detailed guidance outlines which of these specific SRT day-counting tests allow relief for days of ‘exceptional circumstances’. Currently, the relief is not available for a number of the tests. The guidance also explains what circumstances might be considered as ‘exceptional’.

Where relief is available, currently, there is a general limit of 60 days of relief allowed for any circumstance that qualifies as ‘exceptional’. HMRC have confirmed this limit will continue to apply in COVID-19 related cases.

COVID-19 – ‘Exceptional’?

COVID-19 guidance published by HMRC on 19 March confirms that where an individual remains in the UK, this will fall within the ‘exceptional circumstances’ definition where this is due to being:

• Quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus.
• Advised by official government not to travel from the UK as a result of the virus.
• Unable to leave the UK as a result of the closure of international borders.
• Asked by your employer to return to the UK temporarily as a result of the virus.

One of the key characteristics of a successful business is its ability to move with the times – by innovating and developing new product lines, features and improved processes. 

The Government actively encourages this ‘path to success’ with a valuable tax break –Research & Development (R&D) Tax Relief.  

Many businesses don’t take advantage of these great tax breaks because:  

• They don’t realise it exists.
• It sounds like it might be complicated.
• They don’t understand how to take advantage of it.

It can mean you get tax credits or cash back, and it can make the ongoing, or even earlier development of your product line really worthwhile!  

What qualifies for R&D?

If your company is innovating and you’re staying one step ahead of the competition, the chances are you’re undertaking qualifying R&D work without realising it – whatever sector you are in, R&D tax relief doesn’t only apply to the scientific sector!

In fact, any sector could qualify for R&D relief. You’ll need, of course, to demonstrate that the project improved knowledge in your field, which could be food technology, engineering, metalwork, the IT sector or even retail. It is not overly difficult, just demonstrate a new or improved process or product has been created that improves overall knowledge in that field.

We can lead you through the process.

What’s in it for my company?

In blunt terms it means you can effectively deduct 230% of relevant costs from your profits, more than double what you paid out!  

The R&D SME regime is a tax relief scheme introduced by the Government back in 2000 to help innovative businesses, like yours, progress.  It takes all allowable expenditure incurred during the R&D project and allows you to gross it up by 130%. The typical benefits are either a reduction in tax payable or a repayment of tax already paid by the company.  

What expenditure qualifies?

The range of qualifying expenditure is quite broad and includes a range of recognisable costs, including: 

• Materials
• Staff costs
• Subcontracts costs
• Include apportionments of overheads that were relevant to the R&D project. 

With such a wide scope, the tax break is really beneficial. 

Loss-making Company?

The good news is loss-making companies also benefit under this scheme.  Although they are not paying tax, they can opt for a cash payment of 14.5% of the losses made.  This can be a valuable cash injection.  Alternatively, you can carry the loss forward to offset against company profits in the future and save tax at the main corporation tax rate (19% currently).   

Good News – it is not too late to claim!

Don’t worry if you’ve undertaken R&D in previous years and think you’re way too late to benefit – claims can be made up to two years after the end of the accounting period in which the project was undertaken.

Find out more about R&D tax breaks

If you would like to know more about how your company can access this valuable tax break, contact the Tax Team at CST Tax for a discovery chat over a coffee.

Disclaimer
This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario. Information in this publication does not take into account any person’s personal objectives, needs or financial situations. Accordingly, you should consider the appropriateness of any information, having regard to your own objectives, financial situation and needs and seek professional advice before acting on it. CST Tax Advisors exclude all liability (including liability for negligence) in relation to your reliance in this publication

It’s not often that we get the chance to write about a great tax incentive from HMRC on company cars – like never!

For years, employees with a company car have been hammered for tax alongside their employers. 

This is about to change in the pursuit of going green.

Following a 3-year delay from consultation (2017) to implementation, HMRC are due to radically overhaul their Benefit in Kind (BiK) rates for electric vehicles from April 2020.

Recognising that company purchases equate to approximately half of all new car sales, the Government have decided that amending the BiK rates will incentivise drivers of company cars and businesses who offer them, to adopt low emission vehicles.

Let’s assume:

• that you are a higher rate taxpayer (40% in the 2019/20 tax year)  
• you would like to drive a BMW i3 94AH (0 g/km of CO2 emissions)
• with a list price of £34,075

How to save the most tax

The way for you to save most tax is for the company to buy the electric vehicle. 

This is because under the new government incentive the company will get 100% corporation tax relief on the purchase price of the car.

It does mean spending to save, but using the BMW above this would mean a corporation tax saving of 19%*£34,075 = £6,474.

When you purchase the car will determine when you benefit from the tax saving, it’s a deduction from your next corporation tax bill so it all depends on when your company year-end is, and when your next tax payment is due.

If you are a March 2020 year-end, your next tax payment is due 1^st January 2021, so if you buy the car before 31^st March 2020 the benefit is realised in January 2021. If you don’t buy it until April 2021 then you must wait until January 2022!

What if cash flow doesn’t allow the company to buy the car?

There are several lease options available that would still allow you to drive your electric vehicle. You don’t get the 100% tax relief in the same way as if you bought it, but it’s not all bad news.

If you take a lease where you don’t own the car at the end, then your monthly lease instalments are accounted for as expenses, thus reducing your profit and therefore your tax bill. You also get half the VAT back on the instalment amounts. 

What does it mean for the individual? 

This is where HMRC are really making the changes that you or your employees can benefit from.

From April 2020 they are reducing the Benefit in Kind rate to 0% where the vehicle has 0g/kg emissions, this is compared to a rate of 16% in the 19/20 tax year.

That is a huge change and, in our scenario, would result in a £181.73 tax saving – each month!

In the 2019/20 tax year, the tax on the BiK would be:

BIK Value – £34,075 (list price) x 16% (g/kg rate for the year) = £5,452

Tax due – £5,452 x 40% (income tax rate) = £2,180.80 per year (£181.73 per month)

In contrast, when the new rates are implemented in 2020/21, the tax on the BiK will now be:

BIK Value – £34,075 (list price) x 0% (0g/kg rate for the year) = £0.

Tax due on a BIK value of 0 = £0!!

Are there any more benefits to the company?

In addition to the corporation tax savings if you buy or lease the car there are National Insurance savings on the BiK too.

Companies pay employers National Insurance at a current rate of 13.8% on the car’s BiK value. This means 13.8% multiplied by the BiK amount, which in this case is £0, therefore the associated National Insurance is also £0. 

What to do next

If the above has tempted you and you are interested to know more about Benefits in Kind, whether you are an employee with a company car or a business that offers company cars to its staff, please get in touch.

If you’re not quite convinced and want to look at some options that might convince you, then have a look at the links below:

Jaguar – https://www.jaguar.co.uk/jaguar-range/i-pace/models/index.html

Tesla – https://www.tesla.com/en_gb

BMW – https://www.bmw.co.uk/en/all-models/bmw-i.html

Volkswagen – https://www.volkswagen.co.uk/electric/ev-cars/new-electric-cars

Other brands are available!

The small print

At the time of writing, the Revenue has published the rates for the 2021/22 and 2022/23 tax year where you will see the rates increase by 1% each year.

Currently we are unaware of how the rates will change going forward which is the only uncertainty around what is otherwise a fantastic way for employers and employees to save a lot of money whilst retaining the same benefit as before.

There are HMRC limits on the total value of assets that can receive tax relief in single tax years, so if you’re thinking about buying a fleet we should definitely have a conversation before you do!

Disclaimer
This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario. Information in this publication does not take into account any person’s personal objectives, needs or financial situations. Accordingly, you should consider the appropriateness of any information, having regard to your own objectives, financial situation and needs and seek professional advice before acting on it. CST Tax Advisors exclude all liability (including liability for negligence) in relation to your reliance in this publication

Residential property owners will need to be on the ball from 6 April 2020, when new rules come in for the reporting of Capital Gains and payment of Capital Gains Tax.

New Capital Gains Tax legislation has been passed affecting Individuals and Trusts which will have a major impact on their filing and tax payment obligations when they sell UK residential property from 6 April 2020. The legislation applies to capital gains tax (CGT) only and does not apply to companies.

The April 2020 changes are an extension of the current rules which have applied to the disposal of UK property by non-resident persons from 6 April 2015.

Disposals before 6 April 2020 (UK resident individuals and trusts)

Before 6 April 2020, a UK resident individual or trust disposing of UK property that resulted in a taxable gain was required to report that gain on their annual UK self-assessment tax return or by using the HMRC ‘Real Time’ capital gains tax service. The deadline for reporting the gain and paying the tax due was either the 31^st of December or the 31^st  of January following the year of the disposal, depending on which option was used.

Disposals from 6 April 2020 onwards (UK resident individuals and trusts)

From 6 April 2020, a UK resident individual or trust disposing of UK residential property will be required to file a ‘UK land return’ within 30 days of the completion date of the disposal. Where properties are held jointly or in partnership, each owner is required to submit a UK Land return (and pay the tax) in respect of their share of the disposal. Penalties will apply if the return is filed late.

The seller will also be required to pay an estimate of the CGT 30 days from the completion date. This will be treated as a “payment on account” against their total income tax and CGT liability for that year when the annual self-assessment tax return is submitted.

The individual or trust will, therefore, be required to estimate how much tax is payable. This will depend on several factors which could result in a refund/additional liability being due when the annual self-assessment return is submitted. If additional tax is due when the annual return is filed, then interest will be payable at the standard rates set by HMRC.

Exceptions

Some common examples of where a UK land return will not be required are:

• Where the gain is fully covered by principal private residence relief (‘PPR’) throughout the duration of the taxpayer’s ownership. 
• If a loss arises on the sale of the property
• The gain is sheltered by capital losses crystallised before the sale takes place
• The gain is small enough to be covered by the individual’s annual exemption for the year of disposal.

In practice, a UK land return will be required for let properties, second/holiday homes and homes with extensive grounds and gardens not fully covered by PPR, in so far as such disposals give rise to a CGT liability.

The return and payment on account will not be required where the property disposed of is not residential property or where the property is situated outside the UK.

The above list is not exhaustive and, if you have any doubt over whether a return will need to be submitted, please contact one of our team to discuss.

From a practical perspective, the taxpayer will need to rapidly determine whether (or to what extent) their gain is sheltered through PPR relief and, if it is not fully sheltered, what the gain will be and to what extent it will be sheltered by crystallised capital losses or their annual exemption. These calculations can be complex and in some cases even require valuations be obtained. Taxpayers should contact their tax advisers as soon as they decide to put their UK residential property on the market. 

Non-UK residents

Non-UK residents have already been required to file returns within 30 days when they have disposed of UK property, both residential and non-residential, since 6 April 2015 and 6 April 2019 respectively. There are no changes for disposals by non-UK resident individuals or trusts from 6 April 2020.  Fewer exceptions exist for Non-Resident CGT returns, which are still required even where there is no NRCGT payable.

Non-resident companies were within NRCGT for disposals of UK residential property before 6 April 2019, but are now within corporation tax and no longer subject to the reporting obligations described herein.

Filing Procedures

Currently the NRCGT returns must be submitted through the HMRC website. HMRC has stated that it is developing a new process for the UK land returns; it is expected to be similarly accessed through the HMRC website.

Penalties

Penalties for filing the UK land return start at £100 immediately.  If the return is more than 6 months late a penalty equal to the higher of £300 or 5% of the tax due is payable.  If more than 12 months late, a further penalty of either £300 or 5% of the tax will again be due.  £10 daily penalties may also be levied for up to 90 days (between 3 months and 6 months of filing date), but by concession HMRC has stated that it will not usually charge these. For larger transactions, the 10% penalty could be quite significant.

As with other penalties, a taxpayer may be able to appeal on the basis of having a reasonable excuse, but, as has been seen with Non-resident CGT returns, HMRC can be resistant and taking appeals to the tax tribunals can be a lottery. 

Action after 5 April 2020

The application of this legislation to UK residents will be a ‘game-changer’ in the sense that the tax filing and payment obligations need to be considered immediately on completion of the sale rather than left until after the end of the tax year.

It will be common for individuals not to know exactly what their CGT liability will be at the time of the sale and a lot of the relevant information may not be known until after the end of the tax year. For example, this could be the case where the tax liability depends on other disposals or other income in the same tax year. You should contact your tax adviser much sooner (ideally when the property is first put on the market) when making residential property disposals in order to submit the returns on time and to determine an appropriate estimate of the CGT liability.

FAQ’s

Q: Do I have to make a return if there is no gain?

A: No, a return is also not required if the gain is covered by your capital gains tax allowance for the year (£12,000 tax free for the 19/20 tax year).

Q: Can I offset capital losses when calculating the gain arising

A: Capital losses can be offset but only if they arose prior to the gain.  Losses arising in the same year but after the property disposal can only be taken into account on your annual tax return.

Potentially this means paying a capital gains tax bill within 30 days and then having to reclaim the overpaid tax many months later in your self-assessment tax return.

Q: What if I don’t have all of the information to calculate the capital gain?

A:  You can make reasonable estimates and assumptions when preparing the return.  However, if tax is subsequently found to be underpaid when the self-assessment tax return is submitted, interest will run on the amount underpaid to the date of final payment.

Q: Can I amend the return after submission?

A: The return can be amended with actual figures any time up to the filing of the annual self-assessment tax return.  It cannot however be amended for events that occur after the return date.

Q: What happens if I miss the 30 day deadline?

A: HMRC will charge an automatic £100 penalty for a late return; if 6 months late, the higher of £300 or 5% of the tax due; if 12 months late, a further penalty of the £300 or 5%.  In addition, HMRC have the discretion to levy daily penalties of £10 for the 90 days between 3 and 6 months late.

Q:  If I make more than one disposal can I make just one return?

A: No, if there is more than one completion date then a return is required for each disposal.  Property sales with the same completion date must however go on one return.

Q:  I’m selling a shop with a flat above; how do I deal with this?

A: Any gain arising on the entire disposal will need to be apportioned between the shop and the residential property i.e. the flat.  The gain arising on the flat only will need to be reported within 30 days.  The calculation in such cases can be complex and it is important that your accountant is informed as soon as possible and preferably before the sale. 

Disclaimer
This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario. Information in this publication does not take into account any person’s personal objectives, needs or financial situations. Accordingly, you should consider the appropriateness of any information, having regard to your own objectives, financial situation and needs and seek professional advice before acting on it. CST Tax Advisors exclude all liability (including liability for negligence) in relation to your reliance in this publication

US states have taxing powers over sales where there is a sales tax nexus. The sales tax nexus is where your business has a substantial enough presence in a state for the state authorities to deem that you are taxable in such state. Now, however, companies that engage in online sales may be subject to tax obligations regardless of their sales tax nexus under the recent Supreme Court case, South Dakota v. Wayfair.

What happened in South Dakota v. Wayfair?

In South Dakota v. Wayfair, the state of South Dakota was suing Wayfair, an online retailer, for their failure to withhold and remit taxes on online sales inthe state.Wayfair argued against having to do so because under a prior Supreme Court decision, states could only apply sales tax on sellers with a sales tax nexus, which required some sort of physical presence. The Supreme Court decided it was time to take a hard look at this precedent as the growth of online retailers skyrocketed. In doing so, the Court held that states can now require online retailers to collect sales tax if certain revenue or quantity thresholds are met, regardless of whether they have a physical presence in the state.

What are the effects of South Dakota v. Wayfair?

Now, your business will need to withhold sales tax where the business:

1. Has a sales tax nexus with the state; or
2. Engages in online sales that meet the threshold level for the state (“Economic Nexus”).

This ruling primarily affects businesses with large eCommerce sales, Software as a Service sales, and digital goods/services sales. Additionally, for foreign companies who transact business in the US, this ruling may affect you even if you do not have a US permanent establishment.

What is the applicable state “threshold” for online sales?

A business will only need to comply with the ruling of South Dakota v. Wayfair if it reaches the particular state’s gross revenue or quantitative transaction threshold. The most popular gross revenue threshold utilized by states is $100,000 or more in in-state sales; whereas, the most popular state threshold based on the number of transactions is 200 in-state sales. It is critical that for each state you transact business in, you review their specific threshold requirements to ensure compliance.

I think my business meets the online sales threshold of a state, what next?

If your business has meets the online threshold of a particular state pursuant to the sales tax rules of such state, you will be required to register for a state sales tax permit and collect sales tax from all buyers in that state. The sales tax permit is obtained from the relevant state tax department.It is imperative that your business file sales tax in all jurisdictions where your business meets the threshold.

Upon receiving the sales tax permit you will be assigned a sales tax filing ‘frequency’ requiring sales tax filing to be made monthly, quarterly or annually. Again, each state has its own requirements and criteria in determining the filing frequency.

It is important to note that the process of determining whether your business is subject to the state sales tax and therefore is required to register for a sales tax permit, is of particular importance as failing to obtain a sales tax permit is deemed as criminal fraud.

How can CST help you?

Navigating through the sales tax rules can become an overwhelming process when trying to focus on the growth of your business in a new market. If you need assistance in analyzing whether your business has a sales tax nexus (physical and/or economical) in a state and whether you are required to be sales tax compliant, please don’t hesitate to get in contact with a member of our team.

What are the tax consequences of arriving in the United Kingdom and becoming tax resident?

Once considered a tax resident of the UK, under the new Statutory Residence Test (SRT), which took effect from 6 April 2013, an individual is then taxable on worldwide income.

Different income tax rules apply, based on the nature of the source of income, e.g. immovable property income, trading and professional income, investment income, dividend income, foreign income and employment income.

The rental value of a residence is generally not subject to tax. However, with effect from 1 April 2013, an annual tax on enveloped dwellings (ATED) applies to certain non-natural persons owning UK property valued at more than GBP 500k.

What is the minimum time I can remain in the United Kingdom without being tax resident?

The minimum time you can remain in the United Kingdom without being a tax resident is generally under 183 days in a single tax year or under 91 consecutive days if you have a home in the UK (and no other home overseas), or where you spend less than 30 days in a another home overseas.

Does the United Kingdom tax its residents on a world wide or territorial basis?

Yes, the United Kingdom does offer the choice to be taxed on a remittance basis. If the foreign income and/or gains that you leave outside the UK in a tax year are more than £2,000 and you want to pay tax on the remittance basis you must complete a Self-Assessment tax return at the end of the tax year. If the foreign income and/or gains that you leave outside the UK in a tax year are £2,000 or less, you can use the remittance basis without making a claim or completing a Self-Assessment return.

If you do not choose to be taxed on the remittance basis, you will automatically be taxed on the ‘arising’ basis.

Is foreign income taxable in the United Kingdom e.g. foreign rental income, foreign interest income and foreign dividend income?

Foreign-source dividends, interest, royalties and rental income are, in general, fully taxable, subject to the remittance basis of taxation for foreign domiciliary. However, stock dividends from a non-resident company are not taxable.

Does the United Kingdom tax on a remittance basis?

Yes, the United Kingdom does offer the choice to be taxed on a remittance basis. If the foreign income and/or gains that you leave outside the UK in a tax year are more than £2,000 and you want to pay tax on the remittance basis you must complete a Self-Assessment tax return at the end of the tax year. If the foreign income and/or gains that you leave outside the UK in a tax year are £2,000 or less, you can use the remittance basis without making a claim or completing a Self-Assessment return.

If you do not choose to be taxed on the remittance basis, you will automatically be taxed on the ‘arising’ basis.

Does the United Kingdom have a sales tax or VAT tax on purchases?

Yes, there is a standard Value Added Tax (“VAT”) applicable in the UK of 20%.

Does the United Kingdom have a capital gains tax that taxes me when I sell foreign assets?

An individual who is resident in the United Kingdom is subject to capital gains tax (CGT) on worldwide capital gains (subject to the remittance basis of taxation for foreign domiciliary).

Capital gains tax is levied as follows:
– at 18% on gains up to the limit of the taxpayer’s available basic rate band; and
– at 28% on gains in excess of that limit.

For 2020/21, the basic rate limit is GBP 37,500. Capital gains effectively form the top slice of a taxpayer’s income. If a taxpayer already has taxable income up to the amount of the basic rate band, any chargeable gains he has will be taxed at 28%. If, on the other hand, his taxable income does not reach the basic rate band limit, he is taxed at 18% on such an amount of gain as would use up the basic rate limit. Any gains in excess of that limit then attract tax at 28%. The first GBP 12,300 (2020/21 rate) of gains made in a year by an individual are exempt.

Temporary non-residents
Gains of a temporary (i.e. up to 5 years) non-resident from the disposal of assets held before becoming non-resident can be assessed on him in the year of return to the United Kingdom.
There is no liability to capital gains tax on disposals by a non-resident, even of UK situate property. The exception to this rule is where the property is used for the purposes of a trade, profession or vocation being carried on by a branch or agency situated in the United Kingdom.

Does the United Kingdom have an estate tax or death tax?

The UK has an inheritance tax which is charged on the transfer of all property passing on death (chargeable transfers).

No general gift tax exists, but inheritance tax is also levied on certain gifts made within the 7 years before the death of a person (potentially exempt transfers). The scope of inheritance tax is further extended by the inclusion of gifts made outside such 7-year period, but from which the deceased has not been entirely excluded for the past 7 years prior to death (gifts with reservation). Certain transfers inter vivos are taxed at the moment of the transfer (lifetime transfers).

An income tax charge is imposed on the annual value of any benefit exceeding £5,000 derived by individuals from the use or enjoyment of assets that they previously owned. The charge is determined as a percentage of the value of the asset. The relevant percentage is the official interest rate, which HMRC gives as 2.25% for 2020-2021. The taxpayer can opt out of the income tax charge by electing for the asset concerned to be subject to the inheritance tax rules.

What is the top tax rate in the United Kingdom?

As at the 2020/21 Tax Year, the top tax rate in the UK is 45 per cent (applicable to individuals with income in excess of £150,000 per annum) plus National Insurance.

Does the tax rate vary for different types of income and if so what are the rates?

Bracket (GBP) Rate (%)
Dividend Savings Other income
Up to 2,880 10 [1] 10[1] 20[1] 2,881 – 31,865 = 10 20 20
31,866 – 150,000 = 32.5 40 40
Over 150,000 = 37.5 45 45

What are the common tax deductions available in the United Kingdom?

Interest paid by an individual is allowable as a general deduction from income if it is:
– loan interest, whether annual interest or not, but excluding interest on a bank overdraft; and
– for a qualifying purpose.

Qualifying purposes include:
– the acquisition of 5% or more of the share capital of a close trading company;
– a loan to or the acquisition of any shares in a close trading company if the borrower is involved for the greater part of his time in the conduct of its business;
– the acquisition of shares in an employee-controlled company;
– the acquisition of an interest in a partnership; and
– the acquisition of machinery or plant (for instance, a motor car) for use in a partnership or employment.

Insurance premiums
Premiums paid to pension plans are deductible, subject to statutory limits.

Donations
An individual may obtain tax relief on gifts.

Does the United Kingdom require joint tax returns to be filed for me and my spouse or are separate tax returns required?

The United Kingdom requires that separate tax returns for yourself and your spouse are filed.

If I have a foreign company or foreign trust before I arrived in the United Kingdom is the income of that company or trust taxable?

Gains of a foreign company that would be a closely controlled company were it resident in the United Kingdom may be attributed to and assessed on a resident individual shareholder if the individual has an interest of at least 25% (related through a chain of any number of non-resident companies) in the foreign company making the gain.

An exemption applies for gains on the disposal of assets used for the purposes of “economically significant activities” carried on wholly or mainly outside the United Kingdom. There is also an exemption for cases where neither the acquisition nor the disposal of the asset formed part of arrangements for avoiding tax.

Gains of a foreign trust may, in certain circumstances, be assessed on a resident and domiciled settlor or beneficiary. Such assessment may be precluded if the United Kingdom has a tax treaty with the residence country of the foreign company or trust.

Do children under 18 pay a higher rate of tax on certain types of income?

No. Children pay tax at the tax rates applicable above, as adults.

Is there a gift tax in the United Kingdom?

As discussed above, no general gift tax exists, but inheritance tax is also levied on certain gifts made within the 7 years before the death of a person (potentially exempt transfers). The scope of inheritance tax is further extended by the inclusion of gifts made outside such 7-year period, but from which the deceased has not been entirely excluded for the past 7 years prior to death (gifts with reservation). Certain transfers inter vivos are taxed at the moment of the transfer (lifetime transfers).

What are the personal tax exemptions in the United Kingdom e.g. a gift from an overseas relative or a foreign insurance payout?

The main types of income exempt from tax are:

– UK or foreign alimony received under a post-14 March 1988 court order, or under a pre-15 March 1988 court order where an election has been made by the payer, in effect, for exemption to apply; and
– income received under a post-14 March 1988 deed of covenant, such as a payment to a separated spouse.

If I receive shares as part of my salary is this taxed in the United Kingdom?

In general, employees acquiring shares in their employer company under a beneficial scheme are subject to income tax on the benefit obtained, i.e. the difference between the market value and the issue price. This rule applies whether or not the employee acquires shares directly or through stock options. However, there are several different schemes under which a charge to income (and capital gains) tax may be deferred or avoided altogether. The UK tax position in this area is highly complex.

When I leave the country is a ‘termination payment’ taxed by the United Kingdom before I leave?

Yes, if the termination payment is made in relation to an employment performed in the United Kingdom.

What are other tax consequences of leaving the country?

An individual who is found to be UK resident under the Statutory Residence Test will be treated for tax purposes as resident for the full tax year. However, where an individual leaves the UK part way through a tax year, the tax year is treated as split, with the result that the individual would be treated as UK resident for one part of the year, and non-UK resident for the remaining part.

Unrealized capital gains are not taxed upon emigration. The act of leaving the United Kingdom and ceasing to be resident does not constitute a deemed disposal of assets for UK capital gains tax purposes resulting in a gain; however, in certain circumstances, for example, where tax has been deferred on held-over capital gains, a charge may arise at that point.

If you do not declare a capital gain on the assets in the year that you cease being a resident of the United Kingdom, it will be assumed by the Australian authorities that you have elected to defer the taxation point.

Are there any tax consequences of me transferring money from the United Kingdom to my say home country?

Income and gains which have been previously taxed in the UK are not subject to further tax when being transferred to a home country.

There is no charge to capital gains derived by non-residents from the disposal of assets in the United Kingdom, except where the taxpayer is carrying on a trade in the United Kingdom through a branch or agency and the assets are used, held or acquired for the purposes of the trade.

As stated above, non-residents are currently not subject to capital gains tax, except, broadly, on the disposal of trade asset