Posted by Nick Day on 14 Sep 2018
Top 10 Expat Tax Tips for Individuals Moving to the UK
The UK tax rules for non-domiciled individuals were reformed from 6 April 2017 and for example, anyone who has been UK tax resident for at least 15 out of the previous 20 tax years will from the 2017/18 tax year onwards be “deemed UK domiciled” (and therefore taxable in the UK on their world-wide income/gain).
These reforms introduced a one-off “clean up” remittance planning opportunity for non-doms who have filed UK Tax Returns on the Remittance Basis in the past to reorganise their offshore mixed funds in to constituent parts of taxable income/gain and clean tax-free capital. The clean capital can then be remitted to the UK on a tax-free basis.
They also introduced a re-basing of foreign asset costs to their April 2017 market values for UK capital gains tax purposes for those becoming deemed UK domiciled where the Remittance Basis Charge has been paid in the past. These rules can be utilised hand in hand with the one-off “clean up” remittance planning opportunity for mixed funds mentioned above, so that only the clean capital trapped within the disposal proceeds for a foreign asset that has been re-based are remitted to the UK.
Despite these generally complex reform laws, it is worth remembering that for those non-domiciled “expats” moving to the UK there are several tax and social security (National Insurance) planning opportunities available if the right approach is taken and the correct professional advice is followed. Preferably, advice should be taken well in advance of any relocation to the UK.
We lay out below our “Top 10 Tips” for reducing your UK tax bill should you move to the UK. The top rate of UK tax and National Insurance is 47% when combined, so successful planning can lead to large savings.
- Relief for non-UK business travel (“Overseas Work Days relief”) – if you are non-domiciled and move to the UK, you should be taxed on employment earnings relating to non-UK business travel only if you remit these earnings to the UK. This applies for the tax year of your arrival and the following two tax years assuming you have not been UK tax resident before in recent years. You will need to open a “compliant” offshore bank account to receive your earnings. So for example, if you travel on overseas business for 40% of the time, you potentially are liable to UK income tax on just 60% of your earnings.
- Remitting pre-UK “capital” on a tax-free basis – if you are a non-domiciled and planning to file UK tax returns on the remittance basis to avoid paying tax on non-UK income and gains while resident here, it should be possible to “ring-fence” earnings/income/gains from prior to becoming UK tax resident, enabling you to bring this “pre-UK” money to the UK on a tax-free basis. The UK has some quite complex “mixed fund” rules for offshore sources but these should not present a problem if professional planning advice is undertaken.
- Temporary work place relief – if you are assigned to the UK by your overseas employer for a temporary period of up to two years, your UK housing, utility and subsistence costs should be tax deductible expenses, whether or not these are paid by your employer or by you personally. With the high cost of UK accommodation (particularly in London and the South East of England) and the top rate of UK tax at 45%, this can be a hugely valuable tax relief, but does need to be structured/documented in the right way from the outset.
- International travel costs on coming to the UK – it should be possible to claim these costs as tax-free, which should be well worth it as flight costs can of course be very expensive.
- Relocation costs on moving to the UK– the UK allows up to £8,000 of certain employer reimbursed costs to be paid tax-free, in addition to the initial travel costs mentioned directly above.
- Home leave travel costs – if you are non-domiciled and on assignment to the UK for the first time, the reimbursement by your employer of travel costs to visit your home country will be tax-free for the first five years. There is no limit on the number of trips home you can make although your family only get the tax-free treatment for up to two trips a year.
- International tax treaty relief – the UK has double taxation treaties with most countries, which can provide you with exemptions or relief for foreign taxes paid. For example, if you work in the UK for less then six months, you may well avoid UK tax altogether depending on your circumstances. And if you suffer foreign taxes on income which is also taxable in the UK, you should be able to claim a credit for at least some of the foreign taxes paid.
- Tax relief for pension contributions – whether you pay in to a registered UK pension plan or a recognised overseas pension plan while working in the UK, it should be possible depending on the level of your earnings to obtain UK tax relief for your contributions and avoid tax on your employers’ contributions if the correct approach is taken.
- Foreign pensions – if you have participated in a non-UK pension plan whilst a non-resident of the UK prior to April 2017, you might be able to receive a lump sum from the foreign pension plan on a full or partially tax-free basis in the UK.
- Social security – the UK has a network of regulations/agreements with other countries that can keep you in your home country social security system if you are assigned to work in the UK. This can be highly beneficial should your home social security contribution rates be lower than the UK National Insurance rates for employees and employers.
The UK tax and social security rules are hugely complex and this article is for broad guidance purposes only, and is no substitute for a proper review by a qualified professional based on your individual circumstances.
Please click on the following link for further details of the services we offer to “Expats”:
Please click on the following link for a detailed summary of the UK tax residence/domicile rules:
If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org
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- Overseas Pension Changes 6 April 2017