End of Year Tax Planning for Resident Foreigners (and Non-Doms)
As the UK tax year draws to a close, as a resident foreigner, it’s a good time to review your tax residence status to ensure you’ve met and will continue to meet the requirements of the Statutory Residence Test (SRT) as part of your tax planning. In this post, we consider the main provisions of the SRT as well as reviewing whether the ‘deemed domicile’ and ‘remittance basis’ provisions apply to you.
Tax Residence: Statutory Residence Test
The SRT determines an individual’s tax residence in the UK. The rules can be complex and some cases will remain borderline requiring careful consideration.
The SRT has three main parts which are applied in the following order:
- Automatic overseas tests for non-residence
- Automatic UK tests for UK residence
- Sufficient ties test to the UK
Essentially the SRT is a day counting test with complexities. You need to ensure that you are aware of the maximum number of days you can spend in the UK without triggering tax residence.
If you were non-resident for 2018/19, or if you left the UK during 2018/19, you will need to ensure that you satisfy the tests to remain non-resident for 2019/20.
If you intend to leave the UK on or before 5 April 2020 or during 2020/21, start planning now to ensure that you are regarded as non-resident under the SRT.
When leaving or arriving in the UK, consideration should also be given to the tax regime in the other country. Likewise, if you are planning to move to the UK, you need to ensure that you allow sufficient time for pre-arrival tax planning to be carried out well in advance of acquiring UK tax residence.
Non-domiciliaries
Deemed domicile
Fundamental changes were brought in with effect from 6 April 2017 for resident foreigners, or “non-doms” as they are sometimes called.
The concept of deemed domicile in the UK for all tax purposes (i.e. income tax, capital gains tax and inheritance tax) applies to individuals who have been tax resident in the UK for at least 15 years out of the past 20 years.
These rules have been extended to catch individuals born in the UK who have acquired a domicile of choice outside of the UK who return to the UK. Even if they maintain their domicile of choice outside the UK, they will be treated as domiciled in the UK at the point they become UK tax resident.
Once deemed domiciled, an individual is taxed on worldwide income and capital gains on an arising basis and cannot access the remittance basis of taxation. There is some important but limited protection available for trusts set up before an individual becomes deemed domiciled.
Remittance basis
UK resident non-doms who are not deemed domiciled can choose, whether to be taxed on worldwide income and gains as they arise (the arising basis) or to claim the remittance basis.
The remittance basis allows you to only pay tax on your overseas income and overseas capital gains to the extent that the funds are brought to or used in the UK but will usually mean you lose your personal allowance and the CGT annual exemption.
Some longer-term residents in the UK must pay an annual Remittance Basis Charge (RBC) which is: £30,000 if you have been tax resident in the UK for at least seven out of the previous nine UK tax years; or £60,000 if you have been tax resident in the UK for at least 12 out of the previous 14 UK tax years.
Careful consideration should be given to the timing of overseas income and asset disposals. It may be beneficial to realise significant overseas income and/or gains in a single tax year, and to pay the RBC for that year, filing on the arising basis in other years.
If you think you may be affected by any of the above, please get in touch with us today to see how we can assist.
