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Taxation in the UK is definitely not a piece of cake. This article includes three case-studies that demonstrate important rules and requirements that you need to be aware of when moving to and settling in Great Britain.
A Russian national intends to move to the UK on the Tier 1 (Entrepreneur) route with his family — wife and two children that will go to a public school. The wife is the main applicant and the visa is granted in August. The move is scheduled for September.
Target: The husband wants to stay non-resident for UK tax purposes for the current year.
If he starts working in the UK, even if the employer is in another country, this will add another tie, a work tie, and reduce the number of days he can spend in the UK without becoming a tax resident to 90.
A detailed plan is worked out together with the client to control the number of days spent in the UK to prevent him from becoming tax resident.
Because the husband applied for a visa as a dependent and the first visa was granted before 11 January 2018, when a new requirement for PBS dependents came into force, the 180-day requirement doesn’t apply to him. It means that his tax status can be determined without his immigration status affecting it.
However, when the time comes for him to extend his visa in three years, the 180-day rule will apply to him fully and tax planning will be restricted by that.
A Russian national arrived into the UK in August and started working for a British company from day one. She was on payroll according to local rules and enjoyed a tax-free personal allowance for her income tax. She has an apartment and a house in Russia that she rents out and receives income from.
Target: Assess her tax status and obligations, and whether it makes sense to apply remittance basis when calculating her taxes (claiming the remittance basis means you only pay UK tax on the income or gains you receive in or bring to the UK).
Calculations showed that in the tax year when the client moved to the UK she was tax resident in Russia and paid 13% income tax there. Because her earnings were rather high, we’ve opted for the remittance basis of taxation.
Next year, when the client is not a tax resident in Russia any more, she has to pay 30% income tax in Russia. In this case the remittance is no longer valuable; the client is better off declaring her global income and paying UK tax that is the difference between tax liabilities in the UK and taxes already paid in Russia. For example, if the client’s income in Russia is subject to 40% income tax in the UK, but she already paid 30% tax in Russia, it’s 10% left for her to pay in the UK.
A Russian national owns a property in the UK through a BVI offshore company. The flat was purchased in 2014 for £3M. It is not rented out and the client lived there for a year. The flat is subject to the Annual Tax on Enveloped Dwellings amounting to £23,550 in 2017 which the clients pays regularly.
Target: The client wants to gift the flat to his son and granddaughter.
We explained to the client that in this scenario he chose the estate might be subject to inheritance tax in case he passes away in the next 7 years after the transfer. However, the tax rate will be gradually decreasing starting from year four.
To provide protection from potential tax payment, we arranged an insurance policy for the client that covers the amount of the inheritance tax that will be decreasing pro rata to the tax itself.
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