UK: new conditions for wealthy immigrants?
The British investor visa has always been popular among Russians: the nearest European metropolis attracted usable culture and full protection from the state.
Now, some investors will probably think about further staying on its territory: the UK government is discussing possible amendments to the rules on taxation of income of non-domiciled residents. According to him, all those who have been a British tax resident for 15 of the last 20 tax years lose their preferential status and will have to pay taxes not only on local but also foreign assets and income.
The fate of the initiative has not yet been determined: in April of this year, the British Parliament approved a new financial bill (Finance Bill 2017), but the provisions on non-domiciled residents were not included in it. In mid-June, the Chartered Institute of Taxation issued a recommendation on the effective date of the amendments, clearly indicating the possibility of revising the rejected changes. If they are taken into account, the new rules will take effect from April 2018. *
* Every non-domiciled resident will have the opportunity to apply for new rules for him to take effect from April 6, 2017. Representatives of the Royal Institute considered such a decision fair, because some taxpayers have already organized their case management differently, awaiting changes from April this year.
What is a “dominated resident”?
In Britain, there are two concepts: “residency” and “domicile”. Tax residency is determined by the number of days spent in the country during the tax period, and depends on several factors: for example, whether the family of the person lives in the Kingdom, whether the only housing is located in Britain, etc.
Dominicle is recognized as the country of “habitual residence”: the state that the investor considers his home or where he plans to return. Initially, domicile is assigned to the domicile of the father (“domicile by birth”), but from the age of 16 it can be changed independently by leaving the country without the intention to return. In this case, the desire (or lack of it) to return home is important: even a long stay abroad is not considered a reason for the automatic loss of domicile status. Thus, an investor may be recognized as a British tax resident, live in Britain for a long time, but have a foreign domicile.
Domicile determination is important when it comes to calculating income tax, capital gains and inheritance tax liabilities.
As a general rule, a British tax resident must pay taxes on all world income and capital gains. However, non-domiciled residents may apply a special benefit of remittance basis of taxation. In this case, the British tax will be taxed only on income received from sources in the UK, and capital gains on the sale of assets located on British territory. All other income and assets are exempt from local taxation.
You can apply for this benefit for free for the first seven years after a person is recognized as a tax resident of the United Kingdom. Later, you will have to pay for obtaining benefits: £ 30,000 if the person is a British tax resident for seven of the last nine tax years, and 60,000 if the investor has this status for 12 of the last 14 tax years.
What other changes include amendments?
Changes will affect the scope of ownership of real estate.
Today, the acquisition of real estate in the name of a foreign (non-British) company frees the investor from paying inheritance or capital gains taxes. If the appropriate amendments are adopted, then, in the event of the sale of shares or the death of the owner of a company that owns British property, taxes will have to be paid in the United Kingdom.
While the planned changes do not affect the properties that were transferred to the trust before the amendments came into force.
The rules will be tightened for those who were born in the UK, but changed the British domicile to the domicile of another country. According to the proposed reform project, if such a person nevertheless returns to his homeland and acquires tax resident status here, he will automatically be considered domiciled in the UK. This means that he will have to pay income tax and capital gains tax to the United Kingdom. For the inheritance tax it is planned to introduce an additional criterion: the returned person must have the status of a UK resident for at least one of the last two years. In such circumstances, the investor will need to calculate the tax consequences not only for themselves but also for their children.