If you are planning on moving to the UK, it is essential to understand the key tax issues that may impact you. The UK tax system can be complex, and your personal tax liability will depend on various factors such as your residence and domicile status. In this blog, we will discuss the important tax considerations you need to be aware of before moving to the UK.
Residence and domicile
Your tax liability in the UK is determined by your residence and domicile status. If you become a UK resident, you will be subject to UK tax on your worldwide income and gains unless you elect to be taxed on the remittance basis – see below. However, your domicile status can impact how your overseas income and gains are taxed.
Domicile refers to your permanent home or the country to which you have the closest ties. It influences how your overseas income and gains are taxed in the UK.
The remittance basis
Under the remittance basis, if you are a UK resident but not domiciled in the UK, you have the option to pay tax only on your UK income and gains, while keeping your overseas income and gains outside the scope of UK tax until it is remitted (or sent) into the UK.
So if you have any savings or investments abroad, then any investment income and gains earned on these assets will not be subject to UK income tax until it is brought into the country.
However, there are specific rules and requirements to qualify for the remittance basis and before you move to the UK, it is important to consider pre-immigration tax planning. This involves segregating your income and capital to ensure tax efficiency and optimise your financial situation.
It is also important to note that remittance is construed quite broadly and can include the use of credit cards in the UK that are settled from overseas funds, certain types of loan arrangements, transfers from spouses etc. It is crucial to get professional advice before you arrive in the UK.
Capital gains tax
If you sell or dispose of assets, such as property or investments, you may be liable for capital gains tax (CGT). Rates and exemptions apply, and it is important to understand the rules and report gains to HMRC.
If you own assets in the UK, your estate may be subject to inheritance tax (IHT) upon your death. It is payable on all UK assets owned by you at the date of death, even if those assets are held outside the UK and have been disposed of before then. Understanding the rules and planning ahead can help mitigate potential IHT liabilities.
IHT is due if a person’s estate is worth more than £325,000, including property anywhere in the world, however, what is charged will be less if you leave your home to your direct descendants, such as children or grandchildren.
Double taxation treaties
The UK has double taxation treaties with many countries, including Australia and the US. These are designed to prevent you from being taxed twice on the same income in different countries.
If you’re a non-resident in those foreign countries and earn income from these countries, it’s likely that some of this income will be subject to UK tax at rates as high as 26%. However, if your country has a double taxation treaty with the UK it may be possible for you to claim relief from this additional tax burden through one of two methods:
- Tax credit. This involves deducting foreign taxes paid on certain types of foreign source income from your gross taxable income before calculating how much tax has been payable on that part; or
- Deduction (or exemption). This allows an exemption from paying UK taxes on specific types of foreign source income where no deduction is available via method one above but only under certain conditions.
We’ve only scratched the surface on some of the issues here and if you’d like to know more please follow our blog series that will include follow-up topics including:
- How domicile impacts your UK tax status;
- Deemed domicile – Understanding its impact on IHT on international assets;
- Pre-immigration tax planning – segregation of income and capital;
- Moving to the UK to set up a business;
- The importance of wills;
- Tax-advantaged savings and investments.
With over 20 years of experience helping international clients with their tax affairs, at Libra, we’ll talk through your international tax questions in the context of your wider personal financial and tax position, and work with you to develop a plan in line with your goals.
Talk to us about international tax and your personal tax liability.