Tag Archives: Resident non UK domiciles

Working in the UK but employed by an overseas organisation? What you need to know about your tax position

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Many companies and organisations are allowing employees to work both overseas and in the UK, but individuals could be subject to UK tax on their earnings of up to 45%.

In this article, I  examine the potential tax implications for those employees who take advantage of flexible working and choose to conduct their work from the UK, even in situations where the employer of permanent establishment of the business is based overseas.

Read the article here:  Work smarter not harder

The article was published in the STEP Journal (Vol32 Iss1) pp 37-39

Foreign ownership of UK property: What do the new rules mean for your investment structures?

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For overseas owners of UK land and property, the tax rules have become more complicated over recent years – and for the most part, less beneficial.

Many of the changes introduced affect not just non-UK residents, but also foreign-domiciled UK residents (known as ‘resident non-doms’, or RNDs). They apply to residential and commercial

property; and to direct and indirect ownership (i.e. property ownership via a company, partnership, trust or other entity).

The resulting tax landscape is complex, with hidden risks for overseas non-resident property developers.

It’s important to understand the new rules, and their implications for your portfolio strategies. And it’s vital that your ownership structures take account of the risks, while being as tax efficient as possible.

Tightening the net

A slew of measures have all but eliminated the tax benefits of indirect foreign ownership of UK residential property.

This is now subject to:

• the maximum rate of Stamp Duty Land Tax (SDLT) at 15%
• a dedicated tax charge, called the Annual Tax on Enveloped Dwellings (ATED)
• new rules to bring it more fully into the UK inheritance tax (IHT) net

In addition, the Finance Act 2019 has widened the scope for foreign indirect ownership of UK land and property to incur capital gains tax (CGT).

Meanwhile, a new tax-avoidance rule specifically targets disposals of foreign entities with at least 75% of their value in UK land and property. It allows to HMRC to counteract any tax advantages derived from such disposals.

Indirect disposals have also lost their protection from economic double taxation, meaning they could potentially be taxed twice under different sets of rules .

Future changes

On the plus slide, there’s a change in the offing that may be positive for non-resident owners of UK land and property.

From April 2020, income from company-owned property assets will attract corporation tax – which falls to 17% at the same time. This compares favourably to today’s situation: overseas companies currently pay basic-rate income tax on proceeds from UK property, at 20%.

But inevitably, it’s not all good news. The government is consulting on a 1% SDLT surcharge for non-resident property purchases, likely to apply to direct and indirect structures.

And there’s speculation that they’ll go further, closing existing gaps between the tax treatment of foreign-owned residential and commercial property; and between direct and indirect ownership. That could end the eligibility of indirect structures to avoid IHT and SDLT on UK property in certain circumstances.

Key decisions

Faced with an increasingly difficult tax landscape, non-resident property developers must consider two crucial questions – neither of which have simple answers:

1. Should new investments in UK property be made via foreign entities?

Under current rules, there can be tax advantages to purchasing UK commercial property via an overseas company.

But the opposite is the case for residential property, thanks to ATED, the higher SDLT rate, and greater IHT exposure. Unless, that is, the property being purchased is to be redeveloped, or let on commercial terms to a third party with no connection to the owner.

2. Should properties held in foreign corporate entities stay that way?

If acquiring a property for their own use, non-residents should consider collapsing any existing property-owning companies, to avoid ATED and other potential tax liabilities.

Selling a company’s shares (as opposed to the property itself) will attract a much lower SDLT rate than a property sale. But the gains will likely be eroded by the commercial risks and higher transaction costs of selling a company.

The tax rules affecting these decisions are highly complex; and there will be a combination of commercial and personal priorities to weigh up alongside the tax implications. Expert technical advice will be essential when structuring your foreign-owned UK property portfolio.

The Goodman Jones property team can help you find the right strategies in light of the recent changes, and keep your portfolio optimised in an evolving tax landscape.

 

What’s in store for the non UK domiciles – Autumn 2015?

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Now that the summer is behind us, we await the promised consultations on the wide ranging and far reaching proposals for non UK domiciled individuals announced at the Summer Budget 2015.

It has always been difficult for the Government to ensure that the non-domiciled community are encouraged to continue to come to the UK, where they undoubtedly can bring investment, skills and spending power, without the general public perceiving that the tax breaks for non UK domiciles are too great. The phrase “not looked fair” was actually used in the official announcement.

So what could we be facing?

Resident non UK domiciles

  • A deemed domicile rule for all UK taxes (income tax, capital gains tax, inheritance tax etc.) once an individual is UK resident for 15/20 tax years from 6 April 2017 with no “grandfathering rules” (also includes taxes on employment related securities). So full UK taxation on a worldwide basis from 6 April 2017.
  • Extension of the time residency required abroad to lose UK deemed domicile from potentially 3 or 4 years to an overall 5 year period (including those who wish to emigrate permanently).
  • The taxation of overseas trusts is to be fundamentally overhauled and non UK domiciles will find the tax planning and usefulness of these structures severely curtailed.

Returning UK domiciles

An individual who has a UK domicile of origin will automatically revive his UK domicile for taxation purposes on returning to the UK after 5 April 2017 regardless of their domicile under general law.

  • Crucially, any overseas trusts set up whilst that individual has been non UK domiciled will be treated as though set up by a UK domiciliary and taxed accordingly when the settlor is UK resident (this includes UK IHT).

UK residential property

  • Further changes have been announced from 6 April 2017 to bring all UK residential property, whether held directly or indirectly, within the net of UK IHT. This is intended to be the final piece in the jigsaw to remove any tax benefits whatsoever from holding a UK residential property within a structure.
  • The IHT charge will be on the full market value of the residential property net of any borrowings to purchase it, on the usual chargeable events, such as death, certain gifts, exit and 10 year anniversary charges etc.
  • Although to be based on the Annual Tax on Enveloped Dwellings definitions, there will be no de minimus limit and no reliefs, such as letting, will be available.
  • The government will also look at enabling the “de-enveloping” of current structures without a tax cost.

The limited guidance issued after the Summer Budget, just on these measures, mentioned consultations more than 12 times, so it is to be hoped that HMRC will take their time and listen to the responses they receive when looking to implement the Government’s wishes.

These proposals will involve amending existing legislation across the statute books as well as new legislation. The last time such wholesale changes were implemented, was pretty quickly followed by a relaxation of some of the changes. It is to be hoped that HMRC will consider carefully the responses that the interested bodies will furnish them with.

Anyone potentially affected by these changes must take advice in good time to allow for a measured response to their own personal position.