Category: Residency

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

Cyprus is already attracting global technology companies from all over the world, especially from EU countries, due to relatively low operational costs and its competitive EU-approved regimes for non-domiciled individuals. In addition, entrepreneurs from the EU do not require a resident visa to reside in Cyprus.

In February 2017, the Cypriot Government established a new scheme designed to attract Non-EU nationals specialised in the fields of innovation, and research and development (R&D) to Cyprus.

The Start-up Visa Scheme

The Cyprus Start-up Visa Scheme allows talented entrepreneurs from outside the EU and EEA to enter, reside and work in Cyprus in order to establish and operate a start-up company themselves or as part of a team, with a high growth potential. The aim of establishing such a scheme was to increase the creation of new jobs, promote innovation and research, and enhance the business ecosystem and economic development of the country.

The scheme consists of two options:

1. Individual Start-up VISA Plan
2. Team (or Group) Start-up VISA Plan

A start-up team can consist of up to five founders (or at least one founder and additional executive/managers who are entitled to stock options). Founders who are third country nationals must own more than 50% of the shares of the company.

Cyprus Start-up Visa Scheme: Criteria

Individual investors and groups of investors can apply for the scheme; however, in order to obtain the required permits, applicants must meet certain criteria:

• The investors, whether they are an individual or a group, must have a minimum start-up capital of €50,000. This can include venture capital funding, crowdfunding or other sources of funding.
• In the case of an individual start-up, the founder of the start-up is eligible to apply.
• In the case of group start-ups, a maximum number of five individuals are eligible to apply.
• The enterprise must be innovative. The enterprise will be considered innovative if its research and development costs represent at least 10% of its operating costs in at least one of the three years preceding the submission of the application. For a new enterprise the evaluation will be based on the Business Plan submitted by the applicant.
• The Business Plan must stipulate that the organisation’s head office and tax residency will be registered in Cyprus.
• Exercise of the management and control of the company must be from Cyprus.
• The founder must hold a university degree or an equivalent professional qualification.
• The founder must have a very good knowledge of Greek and/or English.

Benefits of the Cyprus Start-up Visa Scheme

Approved applicants will benefit from the following:

• The right to reside and work in Cyprus for one year, with the opportunity to renew the permit for an additional year.
• The founder can be self-employed or employed by their own company in Cyprus.
• The opportunity to apply for a permanent residence permit in Cyprus if the business succeeds.
• The right to hire a specified maximum number of staff from non-EU countries, without prior approval by the Department of Labour in the event that the business is a success.
• Family members may join the founder in Cyprus if the business succeeds.

The success (or failure) of the business is determined by the Cyprus Ministry of Finance at the end of the second year. The number of employees, taxes paid in Cyprus, exports and the extent to which the company promotes research and development will all have an impact on how the business is evaluated.

How Can Dixcart Help?

• Dixcart has been providing professional expertise to organisations and individuals for over 45 years.
• Dixcart has staff located in Cyprus who have a detailed understanding of the Cyprus Start-up Visa Scheme and the benefits of establishing and managing a Cyprus company.
• Dixcart can assist with applications for relevant Cyprus Permanent Residence Programmes if the start-up business succeeds. We can draft and submit the relevant documents and monitor the application.
• Dixcart can provide on-going assistance in terms of accounting and compliance support in organising a company established in Cyprus.

Additional Information

For more information on the Cyprus Start-up Visa Scheme or establishing a company in Cyprus, please contact the Cyprus office: advice.cyprus@dixcart.com or speak to your usual Dixcart contact.