MOVING TO THE UK: THE REMITTANCE BASIS OF TAXATION AND PRE-ARRIVAL AND ONGOING UK TAX PLANNING – SOCIÉTÉ GÉNÉRALE PRIVATE BANKING HAMBROS & BERKELEY LAW
The French team at the Société Générale Private Banking Hambros (SG Hambros) is happy to work with Berkeley Law to deliver a series of five articles to French Connect London (‘FCL’) members.
Various topics will be covered to accompany the French Entrepreneur life cycle in the UK.
- Moving to the UK: UK Resident Non-UK Domiciled: the Remittance Basis of Taxation and pre-arrival and ongoing UK Tax planning
- Setting up a business in the UK: UK Ltd, Limited Liability Partnership (‘LLP’) and UK holding Company regime
- Investing in the Business: Business Investment Relief, Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT)
- Exiting the Business: Entrepreneur relief and Wealth planning solutions
- Exiting the UK: Your exposure to UK tax on death and on ceasing to be UK Resident
Berkeley Law is an independent legal business providing bespoke wealth advisory services to international private clients and the institutions that serve them. In particular the firm’s French team advises French and Francophone clients on their UK tax and succession planning issues; its bilingual lawyers are experienced in providing such advice in the cross-border context.
SG Hambros is the UK private bank of Société Générale. Our bilingual private bankers specialise on French individuals resident in the UK but also relocating or exiting the UK. The French team, together with the assistance of our experienced international wealth planning team, offers onshore and offshore services, from bank accounts segregation, investment and wealth planning solutions.
Moving to the UK
UK Resident Non-UK Domiciled: the Remittance Basis of Taxation and pre-arrival and ongoing UK Tax planning.
As a foreign entrepreneur, you may move to the UK for a variety of reasons including access to markets and technological development opportunities. However one incentive may be the UK’s taxation regime of UK resident non-UK domiciliaries (UKRNDs).
In this article, we explain what a UKRND is and provide an introduction to the remittance basis of taxation. We also consider the key components of pre-arrival and Page|2 ongoing UK tax planning relevant to the entrepreneur, as well as your filing obligations with HM Revenue & Customs (‘HMRC’).
UK Resident non-UK Domiciled
To qualify as a UKRND, you must:
- Be resident in the UK; and
- Be domiciled in a jurisdiction outside the UK.
As a French speaker, you would be forgiven for thinking that residence and domicile have the same meaning. However, domicile would go down as one of the many linguistic faux-amis between our two great languages.
So what does domicile mean in English? In essence, it means the country to which you are most closely related. Everyone has one and by default you acquire the domicile of your father at birth.
On the other hand, your residence is determined by where you physically live and spend time.
If you were born in France and your parents are French, then it is likely that you have a French domicile. Although you will probably become UK resident when you move to the UK, you will retain your French domicile, if France is still the country to which you are most closely related i.e. because you maintain your links to France and you have no intention to make the UK your home for ever
The Remittance Basis of Taxation – General
UK residents are normally taxed on an arising basis which is the “default regime” (taxation on worldwide income and gains as they arise). However, if you are a UKRND you are eligible to be taxed under the remittance basis of taxation.
The remittance basis is a favourable taxation regime under which you can keep your foreign income and gains outside the UK tax regime so long as you do not bring them to or use them in the UK. You will only be liable to UK tax on what you have brought or used in the UK and the tax rate levied will depend on the nature of the remitted funds.
The remittance basis of taxation, like most aspects of the UK tax legislation, is highly complex. To maximise its benefits, you would need to understand when and how it might apply to you.
When might you claim the remittance basis?
You might claim the remittance basis if any of the following situations apply to you:
- You receive income and gains outside the UK which you do not require in the UK;
- You have business interests abroad;
- You are paid for work you do both in and outside the UK. In your first three years as UK resident, your employment income earned in relation to duties performed outside the UK can remain outside the UK tax regime if paid offshore and not remitted.
How do you claim the remittance basis?
In most circumstances, you will have to make an election in your UK tax return. The election is made every tax year and it is therefore possible to opt in or out on an annual basis, depending on your personal circumstances. If you do not make the election then you will be taxed in the UK on the arising basis.
How may you maximise the advantages of the remittance basis?
To maximise the advantages and benefits of the remittance basis, you will need to have a sound understanding of:
- The rules and application of the remittance basis. For example, on claiming the remittance basis you will lose certain benefits such as your UK tax personal allowance. Furthermore, from your 7th year of UK residence, you will be subject to an additional charge if you claim the remittance basis;
- How the remittance basis applies to employment income. You will need to consider what employment agreements and payment structures you would need to put in place both in the UK and abroad to secure the benefits of the remittance basis; and
- Remittance basis planning.
Pre-arrival and ongoing tax planning for the Entrepreneur
What tax planning you are able or willing to implement will depend on what assets you have and how you intend to make use of them.
To assist you in identifying your tax planning options (from both personal and business perspectives), you may wish to consider and take advice on the following:
- How to fund your living costs in the UK. If you claim the remittance basis, one of the key elements of UK tax planning for UKRNDs is to create sufficient Clean Capital. Since Clean Capital can be brought to or used in the UK without incurring a UK tax charge (for example it can include cash owned prior to becoming UK resident, UK taxed income and gains, inherited assets, gifts, etc.);
- You should also consider segregating your non-UK bank accounts (as it could taint your Clean Capital). This involves keeping your foreign income and gains in different accounts from your Clean Capital so that you can keep it outside the UK tax net and mitigate your UK tax exposure, if you decide to remit any of your non-UK income and capital gains in the UK;
- The UK tax implications of disposing of non-UK business assets before you arrive in the UK or when you are already UK resident. The UK gives substantial tax relief to entrepreneurs on the sale of a business, wherever it is situated;
- Understanding the opportunities for you to invest your personal funds, including your foreign income and gains, in a UK business in a tax-efficient manner under the UK Business Investment Relief Scheme;
- Understanding how you can raise finance for a start-up business in the UK through tax-efficient schemes such as the Enterprise Investment Scheme;
- Understanding the funding and ownership of UK property if you intend to buy a home or business premises.
Obligations as a UK Taxpayer
As a UK resident taxpayer you will be subject to HMRC personal tax filing requirements. Below, we have set out the practical steps that must be taken once you have arrived in the UK. They will depend on your circumstances but are likely to include:
- Notifying HMRC of your arrival in the UK and that you should be treated as a UK resident and obtaining a certificate of residence from HMRC to give to the tax authorities of your previous country of residence;
- Completing your UK tax return. Your first return is due by 31st January after the end of the tax year (which runs from 6 April) in which you take up UK residence; and
- If employed or self-employed in the UK, obtaining a National Insurance number to ensure you pay the necessary social contributions.
Solicitor, Berkeley Law Limited
The SG Hambros French team is happy to meet FCL members in one to one consultation to discuss further the above themes (bank account segregation, remittance basis, overseas workday relief). Please contact: Marceline Try, Private Banker SG Hambros, Marceline.email@example.com, +44 7583 038 017.
This document is provided for information purposes only and does not constitute a recommendation or advice. SG Hambros does not represent that such information is accurate or complete and it should not be relied on as such or acted upon without further verification. Tax treatment depends on individual circumstances of each client and may be subject to change.