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