The UK tax system is complex. The rules are changing constantly. This year, we have seen one of the biggest shake-ups in tax rules for more than 200 years. Seeking professional help is your key to making a tax-efficient move to the UK.
Over my career, I hear the same questions asked over and over again and see people repeat the same mistakes as they begin to plan their move to the UK.
Most commonly asked questions
The most common question is “when will I become a UK resident?” If you are a non-resident (and have been for more than five years), generally you will only pay tax on UK income or if you sell land or property in the country.
However, if you are a UK resident, you could be fully exposed to local tax (at rates as high as 45 per cent) on your worldwide income and gains. Understanding the date you will become a resident under the very complicated “split year treatment” provisions is the starting point for planning a tax-efficient move to the UK.
Another question that crops up frequently is “should I sell my UK home before I return to the UK?” Your home is likely to be one of your most significant assets and can have strong emotional ties, so any decision to sell needs to be carefully considered.
As a long-term non-resident, you are only taxed on the gain that has accrued on your UK home since 2015. But once you are a UK resident, you will be taxed on the gain accruing since you purchased your property. Therefore, if you have owned the property for many years, it may be better to sell the property while you remain non-resident as you may pay less capital gains tax.
However, you could consider a special capital gains tax relief that may reduce your tax bill. You can maximise this tax reduction by living in your property once more after returning to the UK.
Seeking expert advice to consider your options and achieve the best outcome is essential.
I am often asked if there is anything that can be done to protect a person from UK tax. Moving from a low tax environment to the complicated and confiscatory UK tax regime (with income tax as high as 45 per cent, inheritance tax at 40 per cent and capital gains tax at 24 per cent) is a big concern. But, with careful planning, it is possible to be tax-efficient in the UK.
There are actions you may be able to take while you remain non-resident that will save you UK tax in the future. For example, selling investments standing at a gain while you remain non-resident is a simple strategy to reduce your future UK tax bills (but be aware of any taxes that may be due elsewhere). As UK residents, a simple win is to ensure that the whole family is using their available tax allowances every year.
Most common mistakes
Under the complex Statutory Residence Test, there are up to six different dates that will trigger a UK tax residence status in the year that you move to the UK. Without careful planning, it is possible to become a tax resident (and possibly liable to UK tax on your worldwide income and gains) many months before you arrive in the UK. People get this wrong and it can come as a very nasty surprise.
Another common mistake I see is not to consider the impact of UK tax on your finances. The UK tax system is complicated and confiscatory. Income tax at 45 per cent and national insurance contributions on earnings can eat up almost half of your salary. Moving from a low tax jurisdiction, which may not tax investment income and gains, to the UK where your investment returns and gains are taxed in full is often a shock.
Finally, the biggest mistake I see is leaving it too late to speak to an adviser about your move to the UK. From time to time, I receive a call out of the blue with someone asking for advice because they are moving to the UK in two weeks’ time. That is far too late in the day. They could already be a tax resident under the complicated split year treatment rules or not have enough time to restructure investments and assets for UK tax efficiency. For example, the best tax outcome might be achieved by selling a UK property while being non-tax resident.
Seeking advice well before your move to the UK is strongly recommended.
Peter Webb is head of tax at Metis, a DIFC-based wealth adviser
