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How to reduce your taxes in the UK?

Getting a UK visa and buying or renting a property in London helps you to settle but it is just the beginning of your capital optimisation. Here are the latest changes to the UK tax legislation for immigrants.

Non-doms in the UK. New rules

Non-doms are typically foreign nationals born outside the UK and legally domiciled in their country of birth. Domicile can be changed but it is a complex procedure.

In 2017, the British Government was planning to introduce changes to the taxation of non-UK domiciled individuals. Due to political situation in the country at that time new rules were postponed. However, it was announced in September 2017 that the new rules were in force and they took retroactive effect from April 2017.

Domicile is a general law term that has certain tax benefits. UK resident non-dom individuals have the option of being taxed on the remittance basis. It means they have to declare and pay taxes on income earned in or brought into the UK.

New rules say that if you have been resident in the UK in 15 out of the previous 20 tax years, you will be deemed to be UK domiciled (deemed-dom). It means you can no longer choose to be taxed on the remittance basis and will have to pay UK taxes on all your global income, including inheritance tax which is 40%*.

* You can read our article Receiving your inheritance in the UK and paying your taxes correctly.

Foreign capital

Along with restrictions, the Government gave a special opportunity, a grace period, to non-doms to separate their clean capital from income earned in the last years.

This opportunity is only given to those non-doms that up until then have been taxed on the remittance basis. They can unravel foreign capital and transfer clean capital to a separate account and later bring it to the UK tax-free.

HMRC recommends opening three foreign bank accounts for the following:

1) Clean capital;

2) Capital gains (income from selling of assets);

3) Regular income (dividends, interest, bonuses, etc.).

These steps will allow non-doms to use their clean capital without tax complications and plan their taxes after they become deemed domiciles.

Ceasing to be UK tax resident

Our clients often ask how to cease being a UK tax resident. It is possible; however, it’s important to understand that being absent from the UK for more than 6 tax years you will lose your deemed-dom status. If you would want to come back to the UK, you will be able to count in the years you had lived in the UK before you left but within the 15/20 rule.

You can leave the country for a shorter period but then you will be subject to the Statutory Residence Test for temporary non-residents. According to general rules, even if you are going to spend less than 182 days a year you might still have enough ties to stay tax resident. In order to cease being tax resident in the UK you might need to spend in the country maximum 45 days in a tax year.

Please remember that if you have been UK tax resident for more than 4 years, including split years, and then come back in less than 5 full tax years, you will be treated under special rules for temporary non-residents. It means that some types of income earned while you were away will be taxed on your return. Normally, it includes capital gains and dividends.

In any case, we strongly advise to talk to an expert in order to get your taxes and expenses right because it’s a challenge to identify all by yourself what is taxed and what is not.

Taxation on property and trusts

Until 2017, UK residential property held indirectly through companies and trusts was not subject to inheritance and capital gains taxes. From April 2017, however, all these taxes will be in force and levied on companies either sold or inherited.

Settlors of trusts that had been in the UK before they became deemed-doms will have to pay taxes on the income derived from it.

Such individuals shall definitely consult with an expert and restructure their assets. The longer you leave the situation as it is, the more taxes you’ll have to pay.

There are many other details and pitfalls that you must be aware of for tax planning. There are exceptions to general rules that are known only to professional. We at Imperial & Legal apply our own vast experience and approach each client individually to offer tailor-made solutions.

Tired of getting general advice?

We will work with you to find a customised solution for your immigration, second citizenship, business, tax and other needs.