Tax advice for individuals relocating to UK

Statutory residence test

The first major consideration is whether an individual will become a UK tax resident under the Statutory Residence Test (SRT). This determines if they will be liable to pay UK tax on their worldwide income and gains.

The SRT examines various ties to the UK, including the number of days spent in the country. Generally, spending 183 days or more in the UK across a tax year (6 April to 5 April) will trigger UK tax residence status. However, the position can be more complicated if the individual has homes in other countries or works abroad. Specific advice should be sought on an individual's particular circumstances.

It is important to pinpoint the likely date that UK residence will commence. This allows income and gains arising before this date to remain outside the scope of UK taxation potentially.

Remittance basis

For non-UK domiciled individuals who will be using the remittance basis to report foreign income and gains, timing is crucial. The remittance basis means foreign income and gains are only taxed when amounts are brought into the UK.

Individuals should aim to receive all foreign employment income before their arrival date and segregate this into separate bank accounts. This protects it from UK tax until amounts are remitted. Capital amounts from property sales should also be received when non-resident and segregated. Setting up a robust offshore asset structure early is vital for those claiming the remittance basis. This will avoid complications that can render clean capital amounts taxable when brought into the UK.

Tax return filing

Registering for self-assessment and filing UK tax returns reporting worldwide income and gains from the UK residence commencement date is necessary. Usually, it is necessary to file by 31 January following the end of the tax year (e.g. file 2023/24 self-assessment tax return by 31 January 2025).

There may also be UK reporting requirements in relation to overseas assets and income if values exceed £2,000. This includes the requirement to make a self-assessment Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) declaration. Penalties can apply for non-compliance.

Work and visas

The type of UK visa an individual holds will impact their tax position. Certain visas may restrict access to the remittance basis, meaning worldwide income is taxed from arrival. Visa conditions may also limit the number of workdays permitted outside the UK.

Anyone intending to work in the UK, including temporarily, must obtain a National Insurance number to facilitate PAYE tax deductions. Income tax rates are 20%, 40% and 45% depending on income levels. Employees also pay 12% National Insurance on salaries between £9,100 to £50,000, with 2% charged above this. An employee's tax residency status and domicile position will dictate what tax rates apply to employment income and whether overseas workdays are liable to UK tax. PAYE coding notices should be carefully checked each year.

Pensions

The UK offers significant pension tax reliefs to incentivise retirement provision, although this contrasts with many overseas territories. For internationally mobile employees, the interaction between the UK schemes and any existing overseas arrangements needs consideration.

Annual allowances dictate how much can be contributed to UK-registered schemes each year with tax relief. For defined contribution schemes, this is £40,000, falling to £4,000 once accessed. There are limits on final pension size in registered schemes, with tax charges applying to excess funds.

Investments

Like some countries, the UK does not tax capital gains, dividends or interest at progressive income tax rates. Instead, there are fixed rates and allowances.

For UK residents, there is a £6,000 annual capital gains exemption, allowing gains below this to be realised tax-free. Gains on stock and shares above this amount are taxed at 10% for basic rate taxpayers and 20% for higher/additional rate taxpayers. Gains on the property is taxed at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

A £1,000 tax-free dividend allowance is available to UK residents, with rates of 7.5%, 32.5%, and 38.1%, applying above this and dependent on income tax bands. The personal savings allowance also gives basic rate taxpayers £1,000 of tax-free interest and higher rate taxpayers £500.

Inheritance Tax

Inheritance tax (IHT) is a consideration for those with a UK tax domicile acquiring worldwide assets. IHT applies to estates valued above £325,000 at 40%. However, transfers between spouses and civil partners are exempt, alongside gifts made more than seven years before death.

Annual allowances permit IHT-free lifetime gifts of £3,000 per annum plus small gifts of £250. Larger amounts escape IHT if the gift giver survives seven years. Non-UK individuals can elect to be UK deemed domiciled for IHT purposes after 17 out of 20 UK tax residence years. This brings excluded overseas assets into the IHT net.

Tax planning opportunities

As part of the client take-on process, a review should identify legitimate tax planning opportunities. This requires considering areas like mortgage interest relief, pension contributions and appropriate Will provisions.

There may also be scope for overseas workday relief for globally mobile employees to avoid UK tax on non-UK duties. Overseas duties performed in the tax year before arrival may also escape UK tax under split-year treatment. Reviews of tax equalisation policies provided by employers can verify if these are being operated correctly.

Wealth structuring using trusts can control tax exposures on worldwide assets. Offshore trusts and companies can provide IHT protection and access to preferential tax regimes. Over time, this enables wealth to accumulate tax-free, with funds eventually distributed to beneficiaries.

This briefing aims to provide an overview of the main tax considerations for individuals planning to move to the UK. It is important to note that UK tax legislation is complex, and international mobility can further complicate matters. If you are planning to relocate to the UK, it is crucial that you seek professional advice from a tax consultant who is experienced in UK tax on foreign income and can provide tailored guidance based on your specific circumstances. Understanding the topics these briefing covers can help you maximise opportunities and avoid costly mistakes.