'New World Wealth' recently reported that 7,000 ultra-rich Indians moved overseas to various locations in 2017, including the UK. A financial expert analyses the tax scenario in the country to weigh up its attractions.
The focus of this report is on the tax regime in the UK and why this may be attractive to individuals domiciled in India or elsewhere. The UK offers many other social and economic benefits and tax is unlikely to be the only factor influencing the decision. However, these are outside the scope of this article.
Moving your business to the UK
Anyone wishing to set up or expand their business into the UK for the first time has a number of considerations. Various types of UK legal entities can be used, on their own or in hybrid structures, such as:
- Private or public limited company
- Joint Venture company
- Limited Liability Partnership
Corporation tax or income tax is due on UK trading profits, depending on the type of entity used. The corporation tax rate is currently 19 per cent, but will decrease to 17 per cent from April 2020. This is a very competitive rate when compared to other jurisdictions. The rate of income tax for individuals varies according to the nature of the money. Broadly, business profits for self-employed individuals or those in partnership are taxed at up to 45 per cent where their total income exceeds £150,000. Income tax rates on dividend income are at up to 38.1 per cent.
Opportunities offered by the UK tax regime for individuals moving to the UK
The UK residence and domicile rules have changed substantially in recent years. However, the UK's Statutory Residence test gives certainty to individuals as to how much time they need to spend in the UK to be treated as UK tax resident. This depends on their particular circumstances.
For non-UK domiciled individuals who become UK tax resident, the UK's remittance basis regime offers an attractive basis of taxation where they arrange their affairs appropriately before arrival and, subject to making a valid claim, limits the UK tax due on overseas income and gains to amounts actually brought to, used or enjoyed in the UK. There have recently been wholesale changes to the taxation of non-UK domiciled individuals but this means that no further changes are expected in this regard in the short to medium term. The benefits of the non-UK domiciled regime can be enjoyed for a period of up to 15 years before being lost.
Income tax and capital gains tax:
Residence status in the UK in a tax year (from April 6 to the following April 5) for income tax and capital gains tax purposes is determined under the Statutory Residence Test (SRT). The rules can be complex but do offer certainty on an individual's tax status. If an individual does not wish to trigger UK-residence status for tax purposes, the SRT enables suitable arrangements to be made regarding the number and duration of permitted visits, numbers of hours worked, and other matters, with significant flexibility to spend time in the UK for individuals arriving there. The tests are very prescriptive and full UK tax advice is generally recommended.
Taxation for non-UK domiciled individuals:
One attraction of the UK tax regime for UK-resident non-UK domiciled individuals is the ability to limit their UK income tax and capital gains tax liabilities to apply only to UK income and gains by claiming the 'remittance basis of taxation' and not remitting (broadly enjoying in any form) non-UK income/gains to the UK. There is no charge for claiming the remittance basis until an individual has been UK-resident for at least seven of the nine previous tax years, at which point it increases first to £30,000 and then to £60,000 per year.
Business Investment Relief offers individuals who are taxed on the remittance basis the opportunity to remit otherwise taxable funds to the UK for business purposes, without incurring a tax charge on the funds remitted provided specific conditions are met.
A non-UK domiciled individual can claim the remittance basis of taxation until they have been resident in the UK in at least 15 of the previous 20 tax years. Partial years of residence count for these purposes. They will then become 'deemed' UK domiciled for income tax, capital gains tax and inheritance tax (IHT) purposes. Thereafter, it may still be possible for individuals to structure their affairs to optimise their global tax position.
New rules introduced from April 6, 2017 mean that individuals who were born in the UK with a UK domicile of origin will generally be treated as deemed domiciled in the UK for tax purposes for years in which they are UK resident.
In general, IHT is charged at 40 per cent on death on the value of a non-UK-domiciled individual's UK assets, and on the value of the worldwide assets of a deemed domiciled individual. However, Indian-domiciled individuals may enjoy beneficial treatment under the terms of the UK-India Capital Taxes treaty, which can override the deemed domicile rule and exempt certain non-UK assets from tax on death. However, recent new rules mean that in many cases this does not provide protection where UK residential property is owned via a non-UK entity, such as a company or partnership.
The UK has long been a place for property investors. The UK government has steadily been changing the taxation of, in particular, UK residential property held by non-residents and are currently seeking to extend this to apply to all UK property. These measures mean UK property is exposed to UK capital gains tax and UK inheritance tax for non-UK residents too. However, this is not inconsistent with the position in many other jurisdictions around the world.
Please also reference the
guide for further information.
Arbinder Chatwal is Head of India Advisory Services, BDO.