Category: Residency

Background

UK inheritance tax should be carefully considered, and appropriate tax planning should be taken by all individuals who have assets in the UK, not just those that live in the UK.

What is UK Inheritance Tax? 

On death, UK inheritance tax (IHT) is at a rate of 40%.

IHT is a tax on money or assets held at death, and on some gifts made during a lifetime (most importantly those gifts made less than 7 years prior to death). 

A certain amount can however be passed on tax-free. This is known as the ‘tax-free allowance’ or the ‘nil rate band’.  

Each individual has a tax-free inheritance tax allowance of £325,000. This allowance has remained the same since 2010-11. In the case of a married couple this tax-free allowance can be passed onto a surviving spouse, which means that, following their death, the estate will enjoy a £650,000 tax free allowance.

Additional Nil Rate Allowance

Individuals who died after 6 April 2017, with an estate value greater than their tax-free allowance of £325,000, due to the value of their home being passed to their children, may pass on an additional tax-free allowance. In tax year 2020 – 2021 this additional amount is £175,000 per estate.

Lifetime Gifts

Gifts made more than seven years prior to death, without the retention of a benefit (such as continuing to live in a gifted property rent free), will not be included in the deceased’s estate. Any gifts made within seven years will, in most circumstances, form part of the estate.

Gift Allowances

There are certain gift allowances that can be used year on year, where the seven-year rule is not applicable. The six key gift options are detailed below. These options, if planned for properly across several years, can reduce the inheritance tax liability considerably.

Dixcart recommends that a record of all gifts made is kept with the Will.

• Give away money each year – each year an individual can give away up to £3,000. This gift can be to anybody or split across any number of people.
• Wedding presents – parents can each give a wedding gift of up to £5,000 to their children. This gift allowance must be made before the ceremony.
• Unlimited small gifts – an unlimited number of gifts of up to £250 each in any tax year can be made as long as they are to different people.
• Charitable donations – charitable gifts are free from inheritance tax. If at least one-tenth of net wealth (calculated as a percentage of the estate, on death) is donated, the Government has the discretion to cut an individual’s inheritance tax rate from 40% to 36%.
• Contributing to living costs – money used to support an elderly person, an ex-spouse, and/or a child under the age of 18 or in full-time education is not considered to be within the deceased’s estate on death, whatever amounts have been paid.
• Payments from surplus income – an individual with surplus income should not ignore the opportunities provided by this provision. If the criteria, detailed below are met, the seven-year period is not relevant:

1. it was made as part of the usual expenditure of the transferor; and
2. the transferor retains sufficient income to maintain his usual
   standard of living, having taken account of all the income transfers
   that form part of his usual expenditure.

Does UK Inheritance Tax Apply to a Non-UK Tax Resident? 

The UK inheritance rules are different depending on a person’s domicile.  The concept of domicile is based on a complex set of laws (outside the scope of this note). However, as a broad overview, an individual is domiciled where they consider themselves to be indefinitely settled and “at home”. There may also be estate or inheritance tax liabilities in other jurisdictions.  Therefore, local advice should be taken in any jurisdiction where taxes might be chargeable. 

For UK IHT purposes, there are three categories of domicile:  

• UK Domiciled – the worldwide assets of the individual will be
  subject to UK inheritance tax, whether the individual is UK resident or
  not.
• Non-UK Domiciled (“non-dom”) – the assets of this individual,
  situated in the UK, will be subject to UK inheritance tax irrespective
  of whether the individual is UK resident or not.
• Deemed UK Domiciled – where an individual is a non-dom but has lived
  in the UK in 15 out of the previous 20 tax years (prior to their
  death). According to UK inheritance tax rules he is considered to be UK
  domiciled and his worldwide assets will therefore be subject to
  inheritance tax on his death. The rules are slightly different if the
  individual has fulfilled this requirement but is no longer resident at
  the date of their death although IHT may well still be chargeable in
  this instance. 

When an individual moves to the UK, dependent on all of the circumstances of the move and the new life adopted in the UK, there may be an argument that an individual has immediately become UK domiciled.  Even if this is not the situation, once an individual has lived in the UK for 15 years, he/she will be deemed domiciled for UK inheritance tax.

As is often the case, a complex set of laws is best considered through explanatory examples. 

Tax Planning Opportunities for Non-UK Tax Residents 

Tom is an Australian citizen; he was born in Australia and has always lived and worked there. He is a UK non-dom and has a net worth of £5m.  He is divorced with one child aged 19. 

Tom’s child, Harry, chooses to study at a university in the UK and Tom is aware that UK real estate has over the last few years shown some good returns. 

Tom purchases a property in his sole name, mortgage free, near to his son’s university in the UK for £500,000 for his child to live in while studying in the UK. 

Planning Opportunity 1: Property Ownership 

Even though Tom is not UK tax resident and is non-dom, any assets that he has in his own name situated in the UK are subject to UK inheritance tax on his death.  If Tom dies while owning the property, leaving his whole estate to Harry, there will be a tax liability of £70,000 on his death.  This is 40% of the value of the property above the £325,000 nil rate band, assuming that Tom has no other UK assets. 

• Tom could have considered purchasing the property jointly in the
  name of himself and his son. Had he done so; on his death the value of
  his UK asset would have been £250,000.  This is below the nil rate band
  threshold and therefore no UK inheritance tax would be payable. 

Planning Opportunity 2: Remittance of Money 

Tom is getting close to retirement and decides to move to the UK to be with his child, who has settled in the UK after finishing university. He sells his Australian home but keeps his Australian bank accounts and other investments. He sends £1m over to a newly opened UK bank account before moving to the UK, to live on once in the UK. 

• Tom would be better advised to remit these funds to a tax neutral,
  sterling jurisdiction, such as the Isle of Man. If Tom was
  to die before becoming domiciled for UK inheritance tax purposes, these
  funds would be outside the inheritance tax net.
• By structuring such an account correctly, Tom could bring capital
  only to the UK and thereby avoid any obligation to pay income tax.
  Please contact Dixcart to take advice on this topic, prior to moving to
  the UK.

Planning Opportunity 3: Use of a Trust 

Tom dies having lived in the UK for 25 years of his retirement.  He leaves his whole estate to his son.  As Tom was deemed domiciled at death, his entire worldwide estate, not just his UK situated assets, will be subject to UK inheritance tax at 40%, except for the nil rate band at the time of his death.  If his estate is still worth £5m, the inheritance tax payable will be £1.87m at current rates and nil rate band. 

• Before Tom became deemed domiciled in the UK, he could have settled
  the non-UK assets he still had into a non-UK resident discretionary
  trust (traditionally in a tax neutral jurisdiction). This would place
  those assets outside his UK estate for UK inheritance tax purposes.
  Following Tom’s death, the trustees could distribute the trust assets to
  Harry; achieving the same results as a will but passing on the assets
  free from inheritance tax liabilities. 

Planning Opportunity 4: Distribution of Assets from a Trust 

Following Tom’s death, his son decides to leave the UK for New Zealand, having lived in the UK for the previous 30 years.  He sells all of his properties and other assets and deposits the proceeds in a New Zealand bank account. He dies within a year of moving to New Zealand. 

As Harry only left the UK a year prior to his death, he will still have been UK resident for more than 15 of the previous 20 years.  He will therefore still be considered UK deemed-domiciled at death and his entire estate would be taxable to UK inheritance tax at 40%, even though he had no assets in the UK on his death. 

• Rather than the trustees distributing the assets to Harry on his
  father’s death, it might have been prudent for the trustees to only
  distribute assets as needed by Harry over time. This would mean that the
  entire estate would not be in his name on his death and would not
  therefore be subject to inheritance tax in the UK.  The assets would
  remain in the trust and be available for future generations of the
  family. Advice should be taken on distributions from a trust to ensure
  that these are as tax efficient as possible. 

Summary and Additional Information

UK inheritance tax is a complex issue. Careful consideration and advice need to be taken regarding the best manner to structure the holding of UK assets. 

It is important for both UK and non-UK tax residents to take advice, as early as possible, and this should be reviewed regularly to allow for any changes in the law and/or family circumstances. A number of important tax planning steps can be put in place, in particular for non-UK tax residents.

If you require additional information on this topic, please contact Paul Webb or Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com.

Spring 2020, and we are experiencing an unprecedented period in terms of threat to health and economic stability.

Lower key disruption took place in April 2010, due to the ash caused by a volcanic eruption in Iceland and the subsequent cancellation of a large number of flights.

At this current time, there may be a number of other, less serious, but important unforeseen consequences.

Tax Residence

You may be in the unfortunate position of having to remain in a country and not being able to travel elsewhere and/or to return to your country of residence. If this is the case, you may inadvertently become tax resident by overstaying the number of days you should remain in that country. 

Action to Take

Please see below a suggested list of action you can take, to help mitigate an unplanned over-stay of days, if you need to:

• Keep records of why you are in the country, and for how long.
• Keep all travel tickets/records.
• Keep any notifications advising you that you cannot leave that particular country.
• It is worth checking the legislation of the country you are in to see if there are exceptions to the usual residency rules. For example, HMRC in the UK provided exemptions during the volcanic ash episode in 2010.

All of the above sounds very simple – but can easily be forgotten in difficult and stressful times.

Additional Information

If you would like further information about the tax residence regime in a particular country, or what your particular status might be, do not hesitate to speak to your usual Dixcart contact or please email: advice@dixcart.com.

In July 2017, the Cyprus Parliament voted for an amendment to the current criteria used to determine Cyprus tax residency. In addition to the 183 day rule, a second test is being introduced in relation to an individual’s tax position in Cyprus.

The  current “183 day rule” applies to individuals who have physically resided in Cyprus for more than 183 days during one calendar year.

In addition to this, a second test will be implemented whereby an individual will be able to become Cyprus tax resident in 60 days. This rule will be applicable to individuals who do not spend more than 183 days in Cyprus or in any other jurisdiction. It is anticipated that this amendment will be effective retrospectively as from 1 January 2017 (the start of the Cyprus tax year).

Criteria to be Met for an Individual to be Considered Cyprus Tax Resident in 60 Days:

The “60 day rule” applies to individuals who in the relevant tax year:

• reside in Cyprus for at least 60 days;

• operate/run a business in Cyprus and/or are employed in Cyprus and/or are a director of a company which is tax resident in Cyprus. Individuals must also have a residential property in Cyprus which they own or rent;

• are not tax resident in any other country;

• do not reside in any other single country for a period exceeding 183 days in aggregate.

Days Spent In and Out of Cyprus

For the purpose of the rule, days “in” and “out” of Cyprus are defined as:

• the day of departure from Cyprus counts as a day out of Cyprus;

• the day of arrival in Cyprus counts as a day in Cyprus;

• arrival in Cyprus and departure on the same day counts as a day in Cyprus;

• departure from Cyprus followed by a return on the same day counts as a day out of Cyprus.

Cyprus Tax Rules

Cyprus tax rules also apply to tax resident non-domiciled individuals.

The key tax benefits are:

• a zero rate of tax on interest
• a zero rate of tax on dividends

Additional tax advantages are available to individuals fulfilling the tax residency criteria and  comprehensive details are available in Dixcart Article 467: Another Reason to Choose Cyprus – The Cyprus Non-Domicile Regime

How Can Dixcart Help?

Dixcart can help individuals to assess their tax position under the new rules and can provide advice regarding the action that needs to be taken.

Additional Information

For further information about the attractive tax regime for non-resident individuals who are classified as tax resident in Cyprus under the “60 day rule”, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

The UK continues to offer significant tax advantages for individuals who are resident but not domiciled in the UK. This is due to the availability of the remittance basis of taxation. The availability of the remittance basis for longer term residents was restricted from April 2017 and additional details are available on request.

Non-UK domiciliaries who are resident in the UK (whether on a short-term basis or a long-term basis) should take specialist advice from a firm such as Dixcart, which has expertise in this area,  ideally before they become UK resident.

Advantages Available Through the Use of the UK Remittance Basis Of Taxation

• The remittance basis of taxation allows UK resident non-UK domiciliaries, who retain funds outside of the UK, to avoid being taxed in the UK on the gains and income that arise from those funds. This is as long as the income and gains are not brought into or remitted to the UK.

In addition, clean capital (i.e. income and gains earned outside of the UK before the individual became resident, that have not been added to since the individual became resident in the UK) can be remitted to the UK with no further UK tax consequences.

What is the UK Remittance Basis of Taxation?

Generally, the remittance basis applies in the following circumstances:

• If unremitted foreign income is less than £2,000 at the end of the tax year (6 April to the following 5 April), the remittance basis applies. The remittance basis automatically applies without a formal claim and there is no tax cost to the individual in the UK. UK tax will be due only on foreign income or gains remitted to the UK.

• If unremitted foreign income is over £2,000 then the remittance basis can still be claimed, but at a cost:-
  1. In all cases the individual will lose the use of his or her UK annual tax free personal allowance and capital gains tax exemption.
  2. Individuals who have been resident in the UK for less than 7 out of the prior 9 tax years do not have to pay a Remittance Basis Charge in order to use the remittance basis.
  3. Individuals who have been resident in the UK for at least 7 out of the prior 9 tax years have to pay a Remittance Basis Charge of £30,000 per annum in order to use the remittance basis. This remains the annual charge until they have been in resident the UK as specified in point 4 below.
  4. Individuals who have been resident in the UK for at least 12 out of the prior 14 tax years must pay a Remittance Basis Charge of £60,000 per annum in order to use the remittance basis.
  5. Anyone who has been resident in the UK in more than 15 of the previous 20 tax years will not be able to enjoy the remittance basis, and will therefore be taxed in the UK on a worldwide basis for income, and capital gains tax purposes.

Identifying Income and Chargeable Gains

The starting point is to identify what type of income and/or chargeable gain is covered by the rules. In some cases this is relatively straightforward. For example, if an individual’s sole source of foreign income is interest arising on a foreign deposit account, then the interest is clearly the individual’s foreign income. However, in reality, matters are often more complex.

The concept of income and chargeable gains includes not only income from sources owned by the individual personally, or gains realised from personally held assets, but also income and gains treated as being received by the individual.

There are many scenarios that might be included in the latter category and some examples are detailed below:

• Income arising in non-UK structures (i.e. trusts and companies) of which the individual is the settlor/transferor (i.e. the person who created the structure or, in some circumstances, who added property to it) where the income is treated as theirs;
• Gains deemed to be those of the individual by being attributed to him through certain closely held foreign corporations – note that these provisions generally only apply where the individual’s ability to participate in the gains and income of the company (normally through a shareholding) amount to a participation of more than 25%; and
• Certain types of deemed income – including on the disposal of non-reporting status offshore funds (i.e. most hedge funds), or income deemed to arise under the “accrued income scheme”, or gains from the disposal of other securities, known as deeply discounted securities.

Having identified what constitutes the individual’s “income and chargeable gains”, it is necessary to track the income and chargeable gains in order to see if they have been remitted to the UK.

Definitions: Remittance, Relevant Persons and Relevant Debt

The legislation creates a broad meaning for remittance and a wide class of persons capable of triggering a remittance. It is important to fully understand the definitions that apply to: “remittance”, “relevant persons” and “relevant debt”. Please contact Dixcart for this detailed information.

The Remittance Rules in Practice

The remittance rules are designed to stop an individual and any “relevant person” using unremitted foreign income or gains to finance an item of UK expenditure without a remittance occurring.

As a result, and subject to the exceptions outlined briefly below, the purchase of any asset in the UK, the payment for any service in the UK, the importation of any asset into the UK by an individual or by a “relevant person” using the individual’s income or chargeable gains, will be deemed to be a remittance.

Example 1:

John purchases a work of art at an auction in Switzerland. John does not have sufficient clean capital to fund the purchase, so he uses overseas income in order to do so. He then brings the art to the UK and displays it in his  house. “Property” has been “brought to” and “received in” the UK by John; therefore this is treated as a remittance of the income used to purchase the picture.

Example 2:

Brian and Claire are husband and wife. Their child David is at school in the UK. The school bills Claire for David’s school fees. Brian gives foreign investment income to Claire to finance the payment of the school fees. Claire is a “relevant person”. Claire has received income which she then spends in the UK by paying David’s school fees. A remittance by Brian is deemed to have occurred.

Example 3:

The facts are the same as in example 2 above, except the school has a foreign bank account into which it invites non-UK domiciled parents to pay the school fees. In this case, no money or other property is “brought to”, or “received” or “used in the UK”. However, a service (in other words the education of David) is provided in the UK to David, who is a relevant person (i.e. Brian’s minor child). Therefore the payment of the school fees by Claire is deemed to be a remittance by Brian.

Exceptions to the Remittance Rules

• Under an exception introduced from 6 April 2012, no tax charge arises on remittances to purchase certain UK investments (this includes the purchase of an interest in a commercial property business).

In addition, there are other exceptions to the remittance basis of taxation.  One of these is exempt property, which includes:

• Clothing, footwear, jewellery and watches if they are for the personal use of a “relevant person”.
• Property where the amount of foreign income or gains (that would otherwise be deemed to be remitted) is less than £1,000. “Property” for these purposes does not include “money” or any negotiable instrument (e.g. travellers cheques).

The Mixed Funds Rules

Since 6 April 2008 new rules have applied which create an order of priority of distribution from “mixed funds” to determine the type of monies that have been remitted to the UK.

Effectively, each account that contains “mixed funds” has to be analysed to determine the type of funds held in that account. This exercise must be undertaken for each tax year in which amounts have been credited to the account. The account will therefore contain a number of layers, each of which will contain a different composition of income and gains as defined in the mixed funds rules. The purpose of the mixed funds rules is to identify the type of funds being remitted to the UK.

This can give rise to complex situations and, wherever possible, we advise individuals coming to the UK to structure their affairs in a suitable manner before becoming resident in the UK. Dixcart is experienced in providing this type of advice.

The simplest way would be to establish three accounts outside of the UK:

1. Capital arising before the individual became resident in the UK, from which remittances can be made tax free;
2. Capital with capital gains arising after the individual became resident in the UK – remittances from this account will attract tax at 20% on the proportion remitted to the UK (with gains being taxed in priority to capital at the same 20% rate); and
3. Other – this would include income; such as interest paid on the first account, deemed income and capital that has become mixed with other sums, except gains.

The intention would be that the individual would keep the capital in account 1, free from any further additions. These amounts could then be remitted to the UK without any further UK tax charge.

If the capital in account 1 was subsequently exhausted, remittances should then be made from account 2, ensuring a lower tax rate than if amounts were taxed as income from account 3.

Temporary Non-Residence in the UK

Non-UK domiciliaries who have unremitted foreign income and gains, and who cease to be resident in the UK, will need to leave the UK and be non-resident for at least five complete years, if they wish to use the non-UK income and gains, that they held prior to becoming non-resident, to fund UK expenditure during their absence from the UK.

The most likely example of the funding of UK expenditure during an individual’s absence would be the repayment of a debt incurred during the individual’s period of residence in the UK. If the individual returns to the UK to become resident within the five year period, pre-departure non-UK income and gains which have been remitted to the UK will be taxed.

In addition, dividends or loans from closely held companies, certain employment income, pension income and chargeable event gains from certain insurance policies will be taxed on return to the UK after a period of temporary non-residence.

Additional Information

If you require any additional information on this topic, please speak to Paul Webb at the Dixcart office in the UK: advice.uk@dixcart.com or to your usual Dixcart contact.

Major reforms regarding how UK tax resident, non-UK domiciliaries (“non-doms”) are taxed were introduced in April 2017.

The changes impact on individuals who have been tax resident in the UK for 15 years or more.

The Attractive Remittance Basis of Taxation will Continue for Many Non-UK Domiciliaries

The availability of the remittance basis of taxation for non-UK domiciled individuals who have been resident in the UK for fewer than 15 years will continue. The availability of the remittance basis allows for some interesting tax planning opportunities.

The “15 year” Rule and Implications Regarding Income Tax and Capital Gains Tax

Since April 2017, anyone who has been tax resident in the UK for 15 of the previous 20 tax years became “deemed domiciled” for tax purposes.  This means that these non-dom individuals no longer have the option to use the remittance basis of taxation and are taxed on a worldwide basis.

UK Tax Residence and the Possibility of “Resetting” the Clock

The “deemed domiciled” 15 year rule is based on the tax residence of the individual non-dom.  Individuals should consider their tax residence position and endeavour to spend less time in the UK to terminate their UK tax residence status and to thereby potentially avoid becoming deemed domiciled, if they wish to do so.

As detailed above, the rule is that an individual is deemed domiciled in the UK if tax resident in the UK for 15 of the previous 20 tax years.  Through appropriate planning, ceasing to be UK tax resident for 6 years can mean that individuals will lose their deemed domiciled status.  Should they then wish to return to being a UK tax resident, they will have reset the year count for the deemed domiciled test.

Additional detail regarding the factors affecting UK resident and non resident status can be found in the following Dixcart Article: The UK Resident/Non Resident Test

TAX PLANNING OPPORTUNITIES

Individuals Seeking to Lose their UK Tax Residence for the Requisite 6 Year Period

A Planning Example

Mr and Mrs Taxpayer spend between 125 and 140 days per year in the UK and have done so for 14 years (all of which they have been UK tax resident).  While in the UK they stay in an apartment they own in London.  For the rest of the year they mainly live in Spain.  They are non-doms for UK tax purposes.  They do not have children.

Mrs Taxpayer is a consultant and spends the equivalent of one day per week (i.e. 52 working days) providing consultancy services to UK based clients while they are in the UK.

UK tax residency considerations will take into account the following factors:

• Mr and Mrs Taxpayer currently spend more than 120 days in the UK per year;
• Each spouse is UK tax resident;
• They have both spent more than 90 days in the UK in the previous 2 tax years;
• They have an apartment available to them while they are in the UK; and
• Mrs Taxpayer works in the UK for more than 40 days per year.

Mr Taxpayer is UK tax resident and has 3 connecting factors. Mrs Taxpayer is UK resident and has 4 connecting factors.

They both realise that under the new “deemed domiciled” rule, from April 2017 they will be taxed in the UK on a worldwide basis and similarly will be subject to UK inheritance tax on a worldwide basis.  This would be a significant cost to them and they would therefore like to reconsider their UK tax residence position.

They would both, however, still like to spend time in the UK, particularly Mrs Taxpayer who does not intend to cease her UK consulting work.

To cease their UK tax residence, both their day count in the UK and their “connecting factors” as specified in the UK Resident/Non Resident Test need to be considered.

Question – Is it possible to maintain the same day count?

Answer – If they wish to retain the same day count in the UK, they would both need to remove all connecting factors.  This is not possible as they have already triggered the connecting factor of more than 90 days in the previous 2 tax years.  It is therefore not possible to maintain this day count.

Question – if all connecting factors are retained, how many days would they need to drop their day count to?

Answer – Mr Taxpayer would need to reduce his day count to below 90 days.  Mrs Taxpayer to below 46 days (which would prevent her from working her current number of days in the UK).  It is worth noting that if they drop to this level, after 2 years, they will no longer trigger the “90 day” connecting factor and after 3 years they will be considered to be “arrivers” so additional planning options might be available at this time.

Question – how many days can they spend in the UK each year?

Answer – the connecting factors and their status as “arrivers” or “leavers” will change over the years and therefore each year will need to be considered separately.  If they are not prepared to sell the apartment, and/or for Mrs Taxpayer to stop working as many days while in the UK; the table below shows the maximum number of days they could spend in the UK and at the same time lose their tax residence status for the requisite 6 year period (assuming Mrs Taxpayer works all the days she is in the UK for the first 2 years).

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Mrs Taxpayer	45	45	90	90	90	90
Mr Taxpayer	90	90	120	120	120	12

Question – how would their day count change if Mrs Taxpayer ceased working in the UK?

Answer – this would mean she would lose one of her connecting factors.  Their day count would therefore mirror each other’s:

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Mrs Taxpayer	90	90	120	120	120	120
Mr Taxpayer	90	90	120	120	120	120

Question – if Mrs Taxpayer does not want to reduce the number of days she works in the UK  but they sold their apartment and stayed in a hotel while in the UK, would this change their position?

Answer – yes, as long as care was taken to ensure that this placed them in a position to avoid the accommodation connecting factor, they would both have lost one of their connecting factors:

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Mrs Taxpayer	90	90	120	120	120	120
Mr Taxpayer	120	120	120	182	182	182

The Positive Effects of Tax Planning

The example of Mr and Mrs Taxpayer illustrates the complexities of the statutory residence test and how, for a married couple, joint planning is crucial.

It also highlights how a single change (in this example, Mrs Taxpayer not working in the UK, or the apartment being sold) might mean that their UK day count need not change significantly for them to become non-UK tax resident for the requisite 6 years.

• At the end of this 6 year period they would be able to return to being UK tax resident and would not become deemed domiciled for a further 15 years. This would mean that they would therefore not be taxed on a worldwide basis for this additional 15 year period.

Additional Information

If you require any additional information on this topic, please speak to Paul Webb or Peter Robertson at the Dixcart office in the UK, or to your usual Dixcart contact.

Updated August 2019

Background

When individuals not resident in the UK are short term business visitors to the UK and/or are directors of UK companies, the individual’s UK tax position needs to be considered carefully. UK tax may be due, but there are a number of options that might reduce or negate the UK tax payable.

Short Term Business Visitors

Short-term business visitors are individuals who are not resident in the UK but undertake visits to the UK on business, to work for a UK company. The UK company is treated as the individual’s employer and must deduct tax under PAYE in the usual way. This applies even when the overseas company continues to pay the individual.

Individuals will usually be taxed on their worldwide income in their country of residence. This means that the same income might be taxed twice. In such circumstances, the individual would need to make a claim for double tax relief.

Short-Term Business Visitor Agreements

HMRC allows companies to enter into a Short Term Business Visitor Agreement (“STBVA”) which removes the requirement to operate PAYE. The individual will not, therefore, be taxed on UK income and will not need to make a claim for double tax relief. The criteria for eligibility for a STBVA are as follows:

1. the individual must be resident in a country with which the UK has a relevant Double Taxation Agreement;
2. the individual must be working for a UK company or a UK branch of an overseas company, but remain an employee of an overseas company;
3. the individual is expected to stay in the UK 183 days or fewer in any 12 month period;
4. The UK company must not ultimately bear the cost of the employment. Even if an individual is legally employed by a UK company, they must be economically employed by an overseas company.

Individuals visiting from overseas branches of a UK company will not be eligible for a STBVA as HMRC considers an overseas branch to be part of the UK company and therefore the final criteria 4, above, is not met.

Under some circumstances an individual can still be eligible for the agreement where their remuneration is recharged to the UK host company (see criteria 4 above), provided that the employee’s visits to the UK total fewer than 60 days in any single tax year. The employer would need a sufficiently accurate recording mechanism to validate that the 60 day rule has been met.

Reporting requirements vary substantially, depending on the number of days spent in the UK. Where reports must be made, these are due by 31 May following the tax year end of 5 April. Directors are not eligible for STBVAs.

PAYE Special Arrangements

PAYE ‘special arrangements’ deal with situations where a STBVA is not available because an individual is visiting from an overseas branch, or from a country with which the UK does not have a double tax treaty, such as Brazil.

• In the situation where a host employer has adopted ‘special arrangements’, PAYE can be calculated annually, as long as the individual has not worked more than 30 work days in any one tax year.

• This eases the administrative burden and means that, where personal allowances are due, there may be no tax to pay. Certain incidental duties can be excluded from the calculation of work days.

The employer has responsibility to assess when a day counts as a work day, when travel to or from the UK has taken place on that day.

The filing deadline is 19 April following the end of the tax year, and any tax due must be paid by 22 April following the end of the tax year.

Directors are not eligible for PAYE ‘special arrangements’.

National Insurance Contributions

UK National Insurance contributions need to be considered separately from tax arrangements.

• There is, however, a 52 week exemption from UK National Insurance contributions.

This means that National Insurance does not usually need to be considered until after 52 weeks of continuous residency. There are separate EU rules which apply in some circumstances. Please contact Dixcart for further information on this.

Non-UK Resident Directors of UK Companies

A non-UK resident director of a UK company is an office holder and therefore his or her earnings, in respect of their UK role, are subject to UK tax.

If the individual is not remunerated for the UK directorship there should be no tax to pay, although HMRC may argue that a proportion of the director’s total remuneration should be allocated to the UK director role. It is therefore helpful if the director’s employment contract sets out whether any remuneration is attributable to the UK directorship, to reduce the risk of HMRC seeking to allocate a portion of the overall remuneration to the UK role.

Self-Assessment Tax Returns

Non-UK resident directors fall within the UK self-assessment scheme for income tax. If HMRC issues a tax return, it must be completed and filed by 31 January, following the relevant tax year end of 5 April.

If HMRC does not issue a tax return, but UK tax is due, the individual must notify HMRC that they are within the criteria for filing a return. If they do not, penalties and interest will apply.

If a return is filed, but no tax is due, HMRC will not subsequently require a return every year, but will periodically check whether one is due.

Accommodation and Travel Expenses

As the individual is the director of a UK company, the UK will be treated as the regular place of work, and accommodation and travel expenses paid by the company are therefore taxable. There are some exceptions to this rule, in tightly defined circumstances.

Reporting

If an employer books and pays for the travel or accommodation, the costs are reported on the employee’s P11D form. If the individual incurs the cost and is then reimbursed, the costs are treated as earnings, and PAYE must be applied.  It may be possible to include these costs in a PAYE Settlement Agreement, to remove the reporting requirement and to allow the employer to directly pay the tax liability.

National Insurance Contributions (“NICs”) for Directors

The NICs position will vary, depending on factors such as the home country of the director, whether that country is in the EEA and whether the country has a social security agreement with the UK.

Where appropriate criteria are met, the director may be exempt from NICs in the UK.

How Can Dixcart Help?

Dixcart can review the status and particular circumstances of short term business visitors to the UK, and non-UK resident directors of UK companies. Dixcart can then assist in determining if individuals are required to pay income tax and, if they are, the most cost efficient manner in which to do so, whilst ensuring that all obligations are met.

Dixcart can assist in determining tax and NIC obligations in respect of both employees and directors working internationally. We can assist with making a STBVA application to HMRC and advise on monitoring systems to ensure that employees’ travel is properly recorded.  We can also assist in approaching HMRC in respect of earlier years where compliance requirements may not have been met.

Dixcart can advise on the tax and NIC obligations of non-UK resident directors of UK companies and can prepare and file self-assessment tax returns and P11D forms where required.

Please speak to your usual Dixcart contact or to professionals in the Dixcart office in the UK: advice.uk@dixcart.com.

BACKGROUND

Many foreigners move to Switzerland for its high life quality, outdoor Swiss lifestyle, excellent working conditions and business opportunities.

A central location within Europe with a high standard of living, as well as connections to over 200 international locations via regular international flights, also make Switzerland an attractive location.

Many of the world’s largest multi-nationals and international organisations have their head-quarters in Switzerland.

Switzerland is not part of the EU but one of 26 countries making up the ‘Schengen’ area. Together with Iceland, Liechtenstein and Norway, Switzerland forms the European Free Trade Association (EFTA).

Switzerland is divided into 26 cantons, each currently with its own basis of taxation. As from January 2020 the corporate tax rate (combined federal and cantonal) for all companies in Geneva will be 13.99%

RESIDENCE

Foreigners are allowed to stay in Switzerland as tourists, without registration, for up to three months. 

After three months, anyone planning to stay in Switzerland must obtain a work and/or residence permit, and formally register with the Swiss authorities.

When applying for Swiss work and/or residence permits, different regulations apply to EU and EFTA nationals compared to other nationals.

EU/EFTA Nationals

EU/EFTA – Working 

EU/EFTA nationals enjoy priority access to the labour market.

Should an EU/EFTA citizen want to live and work in Switzerland, he/she can freely enter the country but will need a work permit.

The individual will need to find a job and the employer register the employment, before the individual actually starts work.

The procedure is made easier, if the new resident forms a Swiss company and is employed by it.

EU/EFTA Not working 

The process is relatively straightforward for EU/EFTA nationals wanting to live, but not work, in Switzerland.

The following conditions must be met:

• They must have sufficient financial resources to live in Switzerland and ensure that they will not become dependent on Swiss welfare

AND

• Take out Swiss health and accident insurance OR
• Students need to be admitted by the relevant educational institution, prior to entering Switzerland.

NON-EU/EFTA Nationals

Non-EU/EFTA – Working 

Third country nationals are allowed to enter the Swiss labour market if they are appropriately qualified, for example managers, specialists and those with higher educational qualifications.

The employer needs to apply to the Swiss authorities for a work visa, while the employee applies for an entry visa in his/her home country. The work visa will allow the individual to live and work in Switzerland.

The procedure is made easier, if the new resident forms a Swiss company and is employed by it. 

Non-EU/EFTA – Not working 

Non-EU/EFTA nationals, without gainful employment are divided into two categories:

1. Older than 55;

• Must apply for a Swiss residence permit through a Swiss consulate/embassy from their current country of residence.
• Provide proof of adequate financial resources to support their life in Switzerland.
• Take out Swiss health and accident insurance.
• Demonstrate a close connection to Switzerland (for example: frequent trips, family members living in the country, past residency or ownership of real estate in Switzerland).
• Abstain from gainful employment activity in Switzerland and abroad.

2. Under 55;

• A residence permit will be approved on the basis of “predominant cantonal interest”. This generally equates to paying tax on deemed (or actual) annual income, of between CHF 400,000 and CHF 1,000,000, and depends on a number of factors, including the specific canton in which the individual lives.

TAXATION 

• Standard taxation

Each canton sets its own tax rates and generally imposes the following taxes: income, net wealth, real estate, inheritance and gift tax. The specific tax rate varies by canton and is between 21% and 46%.

In Switzerland, the transfer of assets, on death, to a spouse, children and/or grandchildren is exempt from gift and inheritance tax,  in most cantons.

Capital gains are generally tax free, except in the case of real estate. The sale of company shares is one of the assets, that is exempt from capital gains tax.

• Lump sum taxation

Lump sum taxation is a special tax status available to resident non-Swiss nationals without gainful employment in Switzerland.

The taxpayer’s lifestyle expenses are used as a tax base instead of his/her global income and wealth. This means that it is not necessary to report effective global earnings and assets.

Once the tax base has been determined and agreed with the tax authorities, it will be subject to the standard tax rate relevant in that particular canton.

It is possible for an individual to have gainful employment  outside Switzerland and to take advantage of Swiss lump-sum taxation. Activities relating to the administration of private assets in Switzerland can also be undertaken.

Third country nationals (non-EU/EFTA), are required to pay a higher lump-sum tax on the basis of “predominant cantonal interest”. This generally equates to paying tax on deemed (or actual) annual income, of between CHF 400,000 and CHF 1,000,000, and depends on a number of factors, including the specific canton in which the individual lives. 

Additional Information

If you would like additional information regarding moving to Switzerland, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com

Russian Translation

Liability to UK tax is broadly determined by the application of the concepts of “domicile” and “residence”.

Domicile

UK law relating to domicile is complex and differs from the laws of most other countries. Domicile is distinct from the concepts of nationality or residence. In essence, you are domiciled in the country where you consider you belong and where your real and permanent home is.

When you come to live in the UK you will not generally become UK domiciled if you intend, at some point in the future, to leave the UK.

Residence

The UK introduced a statutory residence test in 6 April 2013.  Residence in the UK normally affects a whole tax year (6 April – 5 April the following year) although in certain circumstances “split year” treatment may apply.

For more details on residence please read our separate UK Resident/Non-Resident Test  information note.

Remittance Basis

An individual who is resident but not domiciled in the UK can choose to have his or her non-UK income and gains taxed in the UK only to the extent that they are brought into or enjoyed in the UK. These are called ‘remitted’ income and gains. Income and gains made abroad, which are left abroad, are called ‘unremitted’ income and gains. Major reforms regarding how non-UK domiciliaries (“non-doms”) are taxed were implemented in April 2017. Additional advice should be requested.

The rules are complex but in summary, the remittance basis will generally  apply in the following circumstances:

• If unremitted foreign income is less than £2,000 at the end of the tax year. The remittance basis automatically applies without a formal claim and there is no tax cost to the individual. UK tax will be due only on foreign income remitted to the UK.
• If unremitted foreign income is over £2,000 then the remittance basis can still be claimed, but at a cost:
  • Individuals who have been resident in the UK for at least 7 out of the prior 9 tax years must pay a Remittance Basis Charge of £30,000 in order to use the remittance basis.
  • Individuals who have been resident in the UK for at least 12 out of the prior 14 tax years must pay a Remittance Basis Charge of £60,000 in order to use the remittance basis.
  • Anyone who has been resident in the UK in more than 15 of the previous 20 tax years, will not be able to enjoy the remittance basis and will therefore be taxed in the UK on a worldwide basis for income and capital gains tax purposes.

In all cases (except where unremitted income is less than £2,000) the individual will lose the use of his or her UK tax-free personal allowances and capital gains tax exemption.

Income Tax

For the current tax year the UK top rate of income tax is 45% on taxable income of £150,000 or more. Married persons (or those in a civil partnership) are taxed independently on their individual incomes.

As detailed above, if you are resident, but not domiciled, in the UK and choose to be taxed on the “remittance basis” you are taxable in the UK only on income that either arises in, or is brought to, the UK in any tax year.

Individuals resident and domiciled in the UK, or those who do not use the remittance basis, pay tax on all income worldwide on an arising basis.

Careful planning prior to arriving in the UK is needed to avoid unintentional remittances. In each case, attention must be paid to any relevant double taxation treaty.

Any remittances to the UK of income (or gains) used to make a commercial investment in a UK business are exempt from an income tax charge.

Capital Gains Tax

The UK rate of capital gains tax ranges from 10% to 28% depending on the nature of the asset and the income level of the individual. Married persons (or those in a civil partnership) are taxed separately.

As above if you are resident, but not domiciled in, the UK and choose to be taxed on the “remittance basis” you are liable to capital gains tax on gains made from the disposal of assets situated in the UK or from those which are outside the UK if you remit the proceeds to the UK. Non-sterling currency is treated as an asset for capital gains tax purposes and therefore any currency gain (measured against sterling) is potentially chargeable.

As with income, gains realised by certain offshore structures can be attributed to a UK resident individual under complex anti-avoidance rules; for example, gains realised by “closely controlled” non-UK companies (broadly companies under the control of five or fewer “participators”) are attributed to the participators individually.

Gains on the disposal of certain types of asset, such as a main residence, UK government securities, cars, life assurance policies, savings certificates and premium bonds may be relieved from capital gains tax.

Inheritance Tax

Inheritance tax (IHT) is a tax on an individual’s wealth on death and may also be payable on gifts made during an individual’s lifetime. The UK inheritance rate is 40% with a tax free threshold of £325,000 for the tax year 2019/2020.

Liability to inheritance tax depends on your domicile. If you are domiciled in the UK you are taxable on a worldwide basis.

A person who is not domiciled in the UK is taxable only on the transfer of assets situated in the UK (including transfers to successors/beneficiaries that occur on death). For inheritance tax purposes only, special rules apply. Any person who has been resident in the UK (for income tax purposes) for more than 15 years out of a continuous period of 20 years will be treated as being domiciled in the UK for IHT. This is called “deemed domicile”.

Certain lifetime gifts are exempt from inheritance tax provided the donor survives seven years and divests himself of any benefit. Strict rules have been introduced in cases where the donor retains or reserves a benefit out of the gift (e.g. gives away his house but continues to live in it). The effect of these changes will be to treat the donor for IHT purposes, in most cases, as if he had never made the gift.

Transfers of property between spouses of the same domicile status are exempt from inheritance tax, as are transfers by a spouse with a non-UK domicile to a UK domiciled spouse. However the amount that can be transferred by a UK domiciled spouse to a non-UK domiciled spouse without incurring an inheritance tax charge is limited to £325,000. It is, however, possible for a non-domiciled spouse to elect to be treated as domiciled, which would enable the full spouse exemption to be claimed. Once such a deemed domicile had been claimed the spouse would remain deemed domiciled until a number of years of non-residence had subsequently been re-established.

A number of countries offer ‘remittance basis of taxation’ regimes to attract wealthy individuals to re-locate from other countries, such as Russia. These individuals are known as ‘non-doms’. Very simply expressed a non-dom is an individual not living in his/her country of ‘origin’.

The UK remittance regime is a particularly attractive example and although the rules have changed since 2008, with the latest changes being implemented in April 2017, this regime  remains of significant benefit to HNW non-doms living in the UK. In fact, the advantages for individuals living in the UK for less than 7 years remain very generous  (please see below).

The rules are relatively complicated and you are advised to seek specialist advice, at an early stage, from a firm such as Dixcart, with expertise in this area.

Advantages Available Through Use of the UK Remittance Basis Of Taxation

• The remittance basis of taxation allows UK resident non-UK domiciliaries, who retain funds outside of the UK, to avoid being taxed in the UK on the gains and income that arise from these funds. This is as long as the income and gains are not brought into or remitted to the UK. Such individuals are only subject to tax on UK source income and gains.

Exceptions to the Remittance Rules

• Under an exception introduced in April 2012, no tax charge arises on remittances to purchase certain UK investments (these include the purchase of an interest in a commercial property business).

In addition, there are other exceptions, please contact Dixcart if you require further details.

Temporary Non-Residence in the UK

Non-UK domiciliaries who have unremitted foreign income and gains, and who cease to be resident in the UK, need to leave the UK and be non-resident for at least 6 complete years, if they wish to use the non-UK income and gains, that they held prior to becoming non-resident, to fund UK expenditure during their absence from the UK.

UK Inheritance Tax (IHT)

The UK IHT rate is 40% of the value of assets held (above a nil-rate band, which varies depending on circumstances).

• Non-UK dom individuals can benefit from only being subject to UK IHT on UK assets.
• However, this UK tax benefit does not last forever. The IHT position is typically affected, at the start of the 16^th year of residence in the UK and then covers worldwide assets, not just those in the UK.

Additional Information

This is an extremely brief review of the UK remittance basis of taxation and UK IHT. These are complex areas and professional advice should be taken.

If you require additional information on this topic, please speak to Paul Webb or Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com

The Maltese Government introduced modifications to the remittance basis of taxation on 1 January 2018.

Background

Malta offers an extremely attractive remittance basis, whereby a resident non-domiciled individual is only taxed on foreign income if this income is received in Malta or is earned or arises in Malta.

A Tax Change for Resident Non-Domiciled Individuals

Changes, introduced at the beginning of 2018, mean that individuals who are ordinarily resident in Malta, but not domiciled there, may be subject to pay a minimum amount of annual tax in Malta, capped at €5,000.

The tax is payable if the non-domiciled individual:

• is not participating in a scheme such as ‘The Residence Programme’, ‘Global Residence Programme’ and/or ‘Malta Retirement Programme’, which specify a minimum tax payable; and
• earns at least €35,000 of income from outside of Malta (or its equivalent in another currency). In the case of a married couple, the combined income is taken into consideration.

Calculation of the Amount of Tax to be Paid

To calculate the tax payable, personal tax paid in Malta, including withholding tax, is taken into account. Capital gains tax, however, is not included.

If the income of a non-domiciled individual in any single tax year results in a tax liability of less than €5,000, the maximum tax of €5,000 will be payable. For example, if an individual is liable to pay €3,000 on income arising or received in Malta, they will be required to ‘top up’ that tax by an additional €2,000.

An exception to the above rule exists if a non-domiciled or non-resident individual can prove that tax on foreign income or capital, arising outside of Malta, would be less than €5,000. At the discretion of the Commissioner of Tax, the tax liability may be agreed at a lower level than the €5,000 specified amount.

Zero Tax on Capital Gains Arising Outside of Malta

No changes are in place or proposed in relation to tax payable on capital gains arising outside of Malta.

Irrespective of whether this income is brought into Malta or not, NO tax is payable.

Summary

The remittance basis of taxation in Malta remains a very attractive tax regime for individuals who are resident but not domiciled in Malta.

The Maltese remittance basis of taxation has been revised and may result in the payment of a maximum annual tax of €5,000. This remains a relatively low amount of tax payable.

Additional Information

If you would like additional information please contact Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com or speak to your usual Dixcart contact.

Dixcart Management Malta Limited Licence Number: AKM-DIXC