Posted by Nick Day on 08 Mar 2012

Expatriate Tax Planning Advice

Many individuals with “Not Ordinarily Resident” (NOR) UK tax status, that have come to work in the UK temporarily, open offshore bank accounts outside the UK to take advantage of rules which exclude earnings from non-UK duties from being taxable in the UK providing they are not remitted/brought to the UK.

This is a complex area requiring specialist advice, but where such accounts are in place it would be good tax planning to open a new offshore account for each separate UK tax year. Consideration should be given to opening a new offshore account to receive employment earnings paid from 6 April 2012 onwards, but keeping the previous offshore account open that had earnings paid in to it up to 5 April 2012.

The reason for doing this is so that it is simpler to analyse the earnings for each UK tax year separately and decide which account to remit from to minimise UK tax liabilities. The way the UK rules relating to offshore accounts work is to deem the current year’s earnings remitted to the UK first where earnings for more than one year are contained in an account, so by opening the fresh offshore account each year, the earnings for the previous year do not become “trapped” behind current year earnings.

It should not be forgotten that it is possible for non-domiciled individuals to remit to the UK on a tax-free basis, earnings/investment income/capital gains that relate to a period before they became UK tax resident.

The key is not to mix such funds with income/gains arising after becoming UK tax resident, and prior to remitting them to the UK.

Furthermore, if gifts or inheritances are received outside the UK whilst an individual is tax resident here, it should be possible to bring these to the UK on a tax-free basis, although care needs to be taken not to “mix” the funds.

The above comments are subject to reviewing whether it is beneficial to file UK Tax Returns on the “Remittance Basis”, as this may not always be the case.

For an initial consultation regarding expatriate tax/non-residence issues, please contact Nick Day on 01962 856 990 or by emailing nick.day@taxinnovations.com.