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Tax planning for a foreign person when moving and buying a property in England

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When I first came to the UK for work, I thought it was just for a couple of months. But a couple of years later, we had rented a whole house as a family and realised that we were not going to go anywhere for a while. It became clear that we needed to buy our own place. But I was confused by the tax issues involved in property transactions, given that I am not a British citizen. So, I decided to enlist the support of professionals and turned to Imperial & Legal.

Pablo, 36 years old
A businessman from Chile
Clients’ names and photos have been changed

Pablo is originally from South America. He has been living in Britain for several years. His business involves supplying construction equipment to Europe, so at some point he moved to England to manage the processes more successfully.

At first, the man lived there alone, perceiving it as a long business trip. But when it became clear that it would be for a long time, he moved his wife and children to England. They rented a lovely house in the suburbs, found a kindergarten and school for their sons, and began to settle in slowly.

They liked the neighbourhood very much, so when they heard that a house was for sale nearby, they thought about buying it. By that time, they had been living in Britain for over two years and were fully convinced that this country suited them both in terms of everyday life and business — it was much more convenient to do business with European partners from here.

As an entrepreneur, Pablo realised that real estate transactions invariably involve tax payments to the state. In addition, he had long intended to seek advice from accounting professionals to see if his tax bill could be optimised. The businessman had a complex income structure, including income from outside the UK, and he did not want to overpay tax. Even more so, he did not want to get into the unpleasant situation of getting his tax return wrong.

With all these questions the man turned to Imperial & Legal — we were recommended to him by business colleagues who had already used our services and were satisfied with the cooperation.

Our clients

Pablo is a 36-year-old businessman from Chile.

His family: wife Marcia (35 years old), sons Miguel (10 years old) and Leo (4 years old).

The challenge

Developing the best tax strategy and buying a home in the UK with the client being tax resident in England and non-domiciled.

The solution

As we have written above, although Pablo was tax resident in Britain, his domicile was still in Chile. In other words, it was there that he could pay taxes on his foreign income, while he was entitled to pay to the UK Treasury only the deductions related to profits made directly on the territory of the island, as well as on money imported here from abroad.

This is a remittance tax regime. It is convenient to use it when the tax rate in your home country is lower than in the UK, but the funds received abroad remain there, either in foreign accounts or invested in foreign companies. For Pablo, this was an interesting option, as it really did allow him to save on taxes while complying with the laws of both countries.

At the same time, our specialists explained to the man that the remittance tax regime does not last indefinitely. From the eighth year of residence, it becomes chargeable and costs £30,000. After another five years the cost is doubled. And after fifteen years from the beginning of residence in Britain, this opportunity is lost altogether. But since Pablo had only been in Britain for two years, there was nothing to prevent him from using this regime free of charge.

However, this regime was seen as favourable for the entrepreneur only starting next year. After all, this year he had to bring a significant part of his profits into the country to buy a house. And from the finances used on the territory of Great Britain, taxes must be paid to the British treasury, because the concessions for non-domiciles concern only their foreign assets.

We also advised Pablo on buying a house in Britain: our lawyers explained to the businessman that in this case he would have to pay stamp duty, the rate of which depends on the amount of the transaction. Only property worth up to £125,000 is exempt from this tax (provided it is the only home for the buyer). The next £125,000 is subject to 2% stamp duty and the next threshold up to £675,000 is subject to 5%.

As Pablo was planning to purchase the house for £550,000, the scheme was to pay him:

£125 000 = £0

(£250 000 – £125 000) × 0,02 = £2 500

(£550 000 – £250 000) × 0,05 = £15 000

£0 + £2 500 + £15 000 = £17 500

Total: £17,500 stamp duty.

Our experts helped the client to develop a strategy to ensure an optimal tax burden when importing funds for the purchase of real estate. At the end of the tax year, Pablo became our regular client, for whom we continuously prepare and submit tax returns on time.

Pablo sorted out his tax issues in England in two and a half weeks

12 May
Applying to Imperial & Legal
+1 day
Initial meeting to assess the current situation
+2 week
Elaboration of all possible solutions and preparation of the report
+1 day
Final meeting and choice of work strategy
29 May
Pablo's tax issues are resolved

The conclusion

British tax legislation provides favourable tools that allow for a flexible tax policy for both businesses and individuals. The main thing is to have a good understanding of the issue and to know all the subtleties and nuances.

Of course, a person new to the UK may not be aware of all the laws and loopholes associated with tax legislation, so it is best to contact experienced accountants who specialise in these matters.

Imperial & Legal’s qualified staff can help you plan the best strategy for your payments, get all your financial paperwork right and avoid being penalised due to ignorance of any tax regulations. Call or email us and we will review your situation in detail to find the best solution for you.

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