Many of our clients are attracted to life in the UK for a variety of reasons such as economic and political stability, world-class schools, access to financial markets and business advantages such as a favourable time zone, a widely spoken language and a respected legal system. In addition, UK tax rules offer significant tax advantages for individuals who are resident, but not domiciled, in the UK. Under the remittance basis of taxation, non-domiciled UK residents who retain funds outside of the UK are not taxed on gains and income that arise on those funds as long as they are not remitted or brought into UK.
Income and gains earned outside the UK before the individual became resident in the UK can also be remitted to the UK with no tax consequences.
In addition, Britain also offers valuable inheritance tax, business investment and other tax reliefs, which are not available to individuals domiciled in the UK.
To be a non-domiciled resident in the UK, you will typically be a foreign national living in the UK. While you may be considered a tax resident, your domicile will typically remain as your country of birth.
Depending on your personal circumstances, your tax residence status in the UK may change from year to year. Not all non-domiciled individuals have the same tax requirements (for example US citizens living in the UK have different tax requirements).
A UK resident non-domiciled individual has the option of being taxed on either arising basis or remittance basis, electing for every tax year depending on the circumstances for that year.
The arising basis is when an individual will be liable to UK taxation on worldwide income and gains when it arises.
The remittance basis of taxation is when an individual chooses to be taxed only on UK income and gains and only on foreign income and gains brought back to the UK.
How does the UK Remittance Basis of Taxation work?
To claim for the remittance basis is free of charge for the first six years of residency. After that to enjoy this favourable treatment there will be an annual charge known as remittance basis charge:
If unremitted foreign income and gains are less than GBP 2,000 at the end of the tax year on April 5, the remittance basis applies automatically without a formal claim and at no cost regardless of how many years the individual has been resident in the UK.
If unremitted foreign income and gains are more than GBP 2,000 then the remittance basis can be claimed at a cost:
Individuals who have been resident in the UK for less than seven out of the prior nine tax years do not have to pay a Remittance Basis Charge to use the taxation on a remittance basis
Individuals who have been resident in the UK for at least seven out of the prior nine tax years have to pay a Remittance Basis Charge of GBP 30,000 per annum to use taxation on a remittance basis
Individuals who have been resident in the UK for at least 12 out of the prior 14 tax years have to pay a Remittance Basis Charge of GBP 60,000 per annum to use taxation on a remittance basis
Individuals who have been resident in the UK for at least 17 out of the prior 20 tax years have to pay a Remittance Basis Charge of GBP 90,000 per annum to use taxation by remittance basis (the GBP 90,000 charge only applies up to 6th April 2017)
Anyone who has been resident in UK for more than 15 of the prior 20 tax years will not be able to benefit from the remittance basis and will be taxed in UK on a worldwide basis for income and capital gains purposes
In all cases, the individual will lose the use of UK annual tax-free personal allowance and capital gains tax exemption
To claim on a remittance basis, a self-assessment tax return must be filed as the remittance basis is not automatic. If not, the tax authorities will assume taxation on the arising basis and worldwide income will have to be declared.
Who is Deemed Domicile?
Those who have been UK residents for 15 of the previous 20 tax years will be deemed UK-domiciled for all tax purposes. This means that the favourable non-domicile tax regime will not be available indefinitely.
The above is for general information purposes only and does not constitute legal advice. If you have specific questions concerning legal matters you must consult a professional legal services provider.
To discover more about your options of relocating to the UK through residence by investment, please visit our page on residence in the UK!
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