Everfair Tax

Specialists in UK, US and Expatriate Tax.

Managing UK and US Pensions

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Understanding having pension schemes in more than one country.

In recent years, it is increasingly common for executives to have pension schemes in more than one country. Whether that has been from working abroad, or the option to become part of a pension scheme in another country. Therefore, the question often arises when we speak to a client; as to what to do with their pensions from a tax perspective.

Contributions

One of the first questions is often; whether you can get tax relief where you are now resident for contributions into a pension scheme in another country?

Under both the double taxation agreement between the UK and US, and under UK domestic rules, pension contributions to a plan in the other country can qualify for tax relief where you are resident. 

For tax relief to apply, you must have been contributing to the plan prior to becoming resident in the other country. In addition, the plan in question must be a qualifying retirement plan. 

Growth

Under the terms set out in the double taxation agreement between the UK and US, the growth in a qualifying plan in the other country, can’t be taxed where you are resident. Therefore, there is no need to report the annual income and gains received within a pension scheme. Nor the unrealised increase in the value of the assets held in the pension on an annual tax return. The treaty specifically lists IRAs and 401ks as qualifying pension schemes for this purpose.

Withdrawals

As a general rule, under the pensions article of the treaty, withdrawals from a qualifying pension scheme are taxed in the country of residence. This is regardless of where the pension scheme itself is based. However, this rule is subject to the savings clause contained earlier in the treaty. This clause effectively allows the countries to still tax the income on their nationals. Although, they have to provide credit for the tax paid in the country of residence.

It also provides that, where the country in which the pension plan is located would consider something as tax exempt, then it should be considered tax exempt where the person is resident. This would cover situations like the 25% tax free lump sum provided for under UK schemes. As well as the fact that withdrawals from Roth IRAs are tax free in the US. 

This provision is not subject to the savings clause in the treaty mentioned above. It has been the subject of much debate over the years. For example, whether the IRS would allow the 25% lump sum exemption on a distribution from a UK scheme to a US citizen if they are resident outside the US, due to unclear wording of the provision in question. 

Lump Sums

Where a person wants to withdraw their pension as a lump sum, in line with with the double taxation agreement, the pensions article states this is to be taxed where the plan is located. However, it is subject to the savings clause. This allows the country where the person is resident to also tax. This comes with a credit for the tax paid in the country where the plan is located. 

There has been discussion over the years between advisors about the definition of ‘lump sum’ for this purpose. This has included; whether it covers anything but a withdrawal of the whole pot. As well as whether it can still be a lump sum if you have previously drawn on the pension.

Other Charges

As well as the position on distributions, there are additional charges which can arise in respect of a pension. 

In the UK, this includes the lifetime allowance charge. This can apply at certain points when a person has more than their approved lifetime pension fund balance. The fund can vary between just over £1 million and £1.8 million depending on appropriate fixed and individual protections elections which have been made over the years. In the US, there is the 10% early withdrawal penalty if funds are withdrawn from a US pension prior to 59.5%, except in limited qualifying purposes.

The treaty doesn’t specifically provide for what happens with respect to these charges when the person receiving the funds is in the other country. Therefore, that country would normally have a right to tax regular distributions. There is very limited guidance or comment from both the IRS and HMRC. This means that such charges, where applicable, may be in addition to the normal income tax charge arising between the two countries.

Inheritance Tax (IHT) and Estate Tax

From a UK IHT perspective, UK schemes can generally be outside the scope of IHT. However, there is a potential issue with US pension schemes. These may qualify for the same treatment as domestic schemes, if they meet the conditions to be Qualifying Non-UK Pension Scheme (QNUPS) under the relevant regulations. Yet, there is an important difference in the way they are structured when compared to UK schemes.

With UK schemes, there is a non binding letter of wishes. This letter allows the trustees discretion over who they pay the funds to when a pension account holder dies. Although, they are likely to follow the letter of wishes. With the majority of US schemes, there is a binding nomination made as to who will receive the funds. This means the trustees have no discretion at all as to whom they pay the monies to on the account holders death.

This is a crucial difference as it means under UK tax rules, even if the scheme qualifies as a QNUPS, the value of the pension scheme is considered to fall back into the pension account holder’s estate for UK IHT purposes.

If you would like any help with your pension management. Or have any further questions on this topic, please don’t hesitate to contact us.

HMRC’s Top Enquiry Triggers

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Why would HMRC contact or investigate me regarding my tax return filing?

As we head to the end of the year and another UK tax return filing deadline, it is also the period where letters from HMRC may be arriving for taxpayers and their registered agents advising them of HMRC’s intent to conduct a compliance check into the 2019/20 return.

This is because with so many returns being filed in the December and January period, this marks the end of the 12 month window from filing that HMRC usually have to raise questions about a return they receive.

It is worth therefore understanding a few key points, should you receive such a letter. You ought to be aware of the main areas that, in our experience, lead to HMRC opening a compliance check.

What to do when you receive an HMRC Compliance Check Letter?

When you receive a compliance check letter from HMRC, the first step should be to engage with the HMRC Inspector who issued the letter as soon as possible. It will be very important to the successful closure of the enquiry that there is an understanding of what the concerns are which lead to the issue of the letter in the first instance.

Communication with the Inspector and providing clear indications of a wish to assist with the process and provide the required clarifications and additional documentation is also very important both to a prompt end to the enquiry and also to the question of any penalties should it be determined that there is additional tax to pay as there are reductions available in the penalty rules for cooperating fully with the enquiry and prompt provision of requested information.

Some areas of particular focus for HMRC in terms of concern around errors and insufficient tax being paid from our experience are as follows:

Top reasons why HMRC would investigate me regarding my tax return filing?

  • The claiming of foreign tax credits to ensure that these are calculated correctly and allowed under the relevant double taxation agreement or our domestic rules

  • Payment of the correct level of remittance basis charge for the number of years an individual has been resident in the UK

  • Unreported foreign income for those paying tax on the remittance basis

  • Amounts not reported as remittances which should be reported as taxable remittances

    • If your return considers any of these matters it is important to ensure that clear records are kept which can be provided to HMRC in the event of such a check.

    HMRC have also begun to issue what they call one to many letters, affectionately known in the industry as nudge letters, as a first step where they have a specific concern before issuing a formal compliance check.

    These letters ask a client to check their return and ensure they are happy with it in respect to a specific point.

    It may be time well spent therefore if you receive one of these letters to have the return reviewed and write to HMRC as appropriate explaining that the return has been checked and you do not believe it contains any errors with reasons provided. This may prevent a compliance check being issued and therefore prevent stress and professional fees down the line.

    UK Budget 2021 – The Autumn Spending Review

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    Against a backdrop of an increase in the projection for economic growth for next year from 4% to 6.3%, Rishi Sunak delivered today’s Autumn Spending Review.

    True to what was previously outlined, it seems the current Government have made a distinct move towards the Spring Budget where tax policy is announced and the Autumn being more an outline of where public funds will be spent.

    Many key note items had already been trailed in the previous days and weeks including the health and social care levy and change to the dividend tax rate and the property developer tax along with key spending initiatives on infrastructure and health care and the removal of the wage freeze for public sector workers. To help boost jobs and the recovery of the economy there was a freeze in corporation tax confirmed and business rates relief for the next 12 months for specific industries.

    While there was perhaps more to spend than anticipated, there remains a feel of a delay in tax rises rather than a complete reprieve, a when rather than if. There is also a question of why importance is attached to the office for tax simplification if none of its recommendations are to be implemented.

    The Finance Bill will be published on 4 November, and there may still be some surprises in the detail there. Otherwise, is it a case of waiting with anticipation until the March 2022 Budget.

    Client Work | Roald Dahl Story Company & Netflix Acquisition Deal, 2021

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    You might have heard… Netflix recently acquired the iconic Roald Dahl Story Company (RDSC). This is incredibly exciting news. As part of the tax advisory team for RDSC and the wider Dahl family, the team at Everfair Tax were honoured to help bring about this remarkable partnership deal which will help bring some of the world’s most loved stories to current and future fans in creative new ways.

    With family members resident in both the US and the UK – and the wish to devote a significant part of the proceeds of the sale to fund a charitable trust focused on the areas of children’s health, anti-hate and anti-racism – this was a very interesting and exciting project to be a part of.

    It was great to be able to help guide on the tax consequences and ensure that everything was dealt with in the most tax efficient manner. We took into account the tax rules of both countries, the individual needs and wishes of different parts and different generations of the family and aiming to maximise the amount available for charitable work.

    We look forward to continuing to work with the Dahl family and seeing these fantastic stories take on new life with Netflix.

    Moving to the UK – when do you pay tax?

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    When do you pay tax when moving to the UK? Well, not only is it important, but it’s also extremely useful to be aware of your tax responsibilities and the allowances available to you in the UK and your home country. In this article, we briefly overview the rules about when do you pay tax when moving to the UK.

    The UK Statutory Residence Test – The Three Types

    This is where it all starts – identifying whether or not you can become a UK tax resident. It’s determined by what’s called the Statutory Residence Test.

    The UK statutory residence test has three parts:

    • The automatic overseas residence tests
    • The automatic UK residence tests
    • The sufficient ties tests

    If you meet any of the automatic UK resident tests, or are resident in accordance with the sufficient ties, the default position is that you are resident for the whole tax year.

    What are the automatic UK resident tests?

    They look at a combination of physical presence and relevant connections to the UK to determine whether you are considered to be a UK resident.

    Split Year Tax Treatment (of your Split Year Provisions)

    It’s important to bear in mind the UK tax year (running Apr – Apr). In specific circumstances, when you arrive in the UK, you are allowed to divide the UK tax year in which you arrive into two parts.

    A. The part before arrival (non-resident) and;
    B. The part following your arrival (resident)

    These are known as the ‘split year provisions’. They are for those who are arriving in the UK, who are starting to have a home in the UK, starting a full time job in the UK or returning to the UK from working full time overseas.

    Non-residents are only taxed on specific types of UK-source income. Sometimes non-residents are taxed on UK-source capital gains, whereas UK residents are potentially taxable on their worldwide income and their capital gains too.

    What is Domiciled in the UK?

    The extent to which you are required to pay UK tax on income and gains generated outside the UK, entirely depends on what is termed your ‘domicile status’. The concept of domicile is essentially where you consider your permanent or indefinite home to be. This can be:

    The country of your birth, or;

    Where your father considered his permanent or indefinite home to be during your childhood or;

    Somewhere that you build a life and consider home as an adult

    Domicile and Remittance Basis

    If your domicile (the place you consider your permanent home) is not in the UK, then you can potentially claim the remittance basis. Claiming the remittance basis allows you to only pay tax on non-UK income and capital gains, to the extent that it is considered to be “remitted” (ergo received into) to the UK. The remittance basis can be claimed or not claimed each year, that’s your choice and dependent on your preferences and circumstances. It’s important to note that the annual cost of claiming the remittance basis increases, alongside the length of your residence in the UK.

    • < 7 years residence of previous 9 – loss of income tax allowance and capital gains tax exemption
    • 7 years of residence of previous 9 – loss of income tax allowance and capital gains tax exemption, +plus flat fee of £30,000
    • 12 years of residence out of the previous 14 year – loss of income tax allowance and capital gains tax exemption plus flat fee of £60,000
    • After 15 years of residence in the previous 20 years, the remittance basis can no longer be claimed

    For non-UK domiciled individuals (i.e. those who don’t consider UK as their permanent home), the first three years of residence in the UK (including the year of arrival), can also bring an entitlement to tax relief. This tax relief is based on any proportion of salary which relates to the number of days spent working outside the UK. This first three years tax relief also depends on conditions being met, as to where the salary is paid and retaining an appropriate proportion of the salary outside the UK.

    Monies that you had before becoming resident in the UK would be considered tax free. Therefore, to benefit from this and any claim to the remittance basis, it is important to structure your bank account properly. This is something a specialist can help you with.

    Finally, it’s important to know that there is no uplift to market value on arrival in the UK in terms of the basis for assets for UK CGT purposes, if that asset is sold whilst you’re a UK-resident. The entire difference between the original purchase price and sale process would potentially be subject to tax.

    If you have any specific questions about your tax responsibilities, we can answer those for you based on your specific circumstances. We can also work with you on an on-going basis to help you to always prepare well in advance.

    Here are some further useful, reputable UK tax resources for you:

    https://www.gov.uk/tax-come-to-uk
    https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3
    https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm10200
    https://www.rossmartin.co.uk/overseas-residence/2357-split-year-treatment-toolkit

    How do double taxation agreements work?

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    A double taxation agreement is designed to do exactly what it says – prevent double taxation.

    It is a treaty between two countries which sets out who gets the main right to charge tax on particular types of income and capital gains.

    The other country to the treaty can still potentially charge tax on that income and gains but it would have to allow a credit from the tax that would usually be due for the tax already paid in the other country. Generally this means that you end up paying whichever is the higher of the tax due in the two countries.

    Sometimes the agreement does specify that a particular type of income or gains is only taxable in one of the two countries, an example being pension income or a lump sum from a pension scheme in that country. However even then there is usually a part of the agreement that says when the income or gains is not subject to tax in the country with the main taxing rights for example through a claim to the remittance basis, then the other country can still charge tax as there is no double taxation.

    US treaties also contain an extra specific carve out known as the savings clause allowing US citizens to be taxed as if the treaty did not exist in most cases. What this means that even if the treaty says the income is only taxable in the UK on a UK resident, it is also taxable in the US but the US would have to give credit for the UK tax due on the same amount. In that way double taxation is still avoided.

    In the more unusual circumstances where an individual is considered resident for tax purposes in both countries then before the treaty can even be considered you will need to determine where the person is resident for this purpose. This is done using a four part test set out in the agreement and you go through the four tests in order, stopping when one of the tests is met. The tests include where you have a home, where you main social, family professional and economic ties are (known as the centre of vital interests), where you physically spend more of your time and which country you are a national of.

    Double taxation agreements are very useful to avoid being taxed twice on the same income in two places but can be difficult to understand and need to be applied correctly to get the right outcome.

    The UK in particular are looking more and more closely and claims to foreign tax credits to ensure they are allowable under the terms of the various double tax agreements they have entered into.

    What it means to be domiciled for UK tax purposes

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    The concept of domicile essentially means which country an individual ultimately considers to be their home and to which they will at some point return.

    There are two main ways that an individual can establish a domicile.

    The first is at their birth though the domicile of their parents although it is typically the domicile of the father which is considered here. This is known as the domicile of origin.

    The other main way is through making a new country their home as an adult, known as a domicile of choice.

    The domicile of origin is the stronger of the two domicile concepts and it is necessary to prove that a domicile of choice has been created to replace the domicile of origin. HMRC for example would need to prove that an individual who has his domicile of origin outside the UK has established a domicile of choice in the UK. An individual who had a UK domicile of origin would likewise need to prove that they have established a domicile of choice outside the UK. This is done by demonstrating the extent of ties to the country in which it is said a domicile of choice has been established and that ties to the country of origin have been broken.

    So having established that you are a non UK domiciled individual, what are the benefits available to you?

    The first benefit is being entitled to access the remittance basis of taxation. This means that non UK income and gains are only subject to tax if they are brought to or used in the UK by you or what is termed a relevant person which includes your spouse, co habiting partner and minor children. Whether to make a claim to the remittance basis is a decision which can be made each year when the tax return for that year is prepared.

    The cost of claiming the remittance basis depends on the length of time you have been resident. For the first seven years the cost of the remittance basis is the loss of your tax free allowances for income and capital gains tax. After you have been resident for seven of the last nine years (including part years of residence) the cost increases to £30,000 per annum and after you have been resident for 12 out of the years the cost goes to £60,000 per annum.

    Another benefit to being non UK domiciled is that for inheritance tax (IHT) you are only subject to IHT on UK based assets such as real estate, cash balances in UK accounts and UK registered shares. Gifts of non UK assets are also not subject to the seven year rule and are immediately outside your estate for IHT.

    Once you have been resident in the UK for 15 of the last 20 years you become deemed domicile and the remittance basis and protection of your non UK assets for IHT are no longer available.

    Planning is key to making the most of any opportunities presented by being non UK domiciled, especially ahead of increases in the cost of claiming the remittance basis and becoming deemed UK domiciled.

    What to think about when considering estate planning in the UK

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    What to think about when considering estate planning? Whilst tax is important, it should not be the driver for any estate planning. Instead, the starting point is how you would like to see your assets pass on your death and then the estate plan can achieve this as tax effectively as possible. Here, we’ll share the key considerations and what you should have prepared.

    So, you’re thinking of your estate and planning to be as tax efficient as possible. What are the key considerations and steps?

    Consideration 1: Estate Planning, Wills & Power of Attorney

    Firstly, it’s key to have up to date wills and powers of attorney to make matters smooth and to ensure that all assets pass the way you would like. The last thing you want are for complications to arise around the intestacy rules. You want to feel assured in the knowledge that things are as straight-forward as possible for those administering the estate on your death.

    Consideration 2: Estate Planning and Inheritance Tax

    From a tax perspective, when thinking of an estate plan it’s important to establish the extent of the Inheritance Tax (IHT) liability. Most UK resident individuals (and even UK domiciled individuals who are resident outside the UK) are subject to IHT on their worldwide assets. However, those who are non UK domiciled and not deemed domiciled are only subject to IHT on their UK assets.

    Consideration 3: Gifting during your lifetime

    An estate plan can include gifts to be made during lifetime where this is appropriate and something you are comfortable with. This is particularly important as gifts during lifetime require giving up the assets and the right to receive any income that they generate. You would have to be comfortable that the beneficiaries are ready to receive the assets and that you are happy you would have enough remaining to meet your own needs.

    Option: Estate Planning gifting to individuals

    Where lifetime gifts are made to individuals, these fall outside the estate for IHT seven years after the gift is made. So, in other words… if you gift to an individual seven years prior to your death, the value of the gift given is not subject to IHT.

    Why? Well, these are referred to as potentially exempt transfers or PETs. If the person who makes the gift passes within the seven years then the value of the gift forms part of their taxable estate on death, with the tax reducing if the gift has been survived by three years.

    Option: Estate Planning with Trusts

    Gifts to trusts during lifetime are known as chargeable lifetime transfers (CLT’s) and attract a potential 20% immediate IHT charge if over the tax exempt allowance for IHT known as the nil rate band, currently £325,000.

    If you’re a non UK domiciled person, you’re able to make gifts from non UK assets without this being a potentially exempt transfer (subject to the seven year rule). So essentially, if you’re non UK domiciled and you gift £325,000+ in UK assets to a trust while you’re alive, the value of that gift will be subject to 20% IHT charge. Whereas if you’re non UK domiciled and were to gift to that trust from non UK assets, you can potentially avoid these gifts/assets being subject to tax.

    What is being deemed Domiciled, and are exemptions available?

    An individual becomes deemed domiciled after living in the UK for 15 years of the last 20. So, before an individual becomes deemed domiciled, it would be worth considering planning to minimise the IHT on non UK assets. This can include a trust, or other structures.

    More generally, there are also a number of exemptions which it is worth being aware of and ensuring that you’ve edit from where possible.

    Most people are quite familiar with the spousal exemption for example – this allows assets to pass between a married couple without IHT implications.

    For a couple, where one is non UK domiciled and the other is UK domiciled, the spousal exemption would allow assets to pass from the UK domiciled spouse to the non UK domiciled spouse. This is limited to £325,000.

    There is also a small annual gift exemption of £3,000, and gifts to a person when they are getting married.

    Perhaps the other most valuable exemption, is gifts out of surplus income. You have surplus income if you have more income annually that you need in order to pay your usual living costs. So, gifts out of surplus income allows people to give away the remaining surplus balance, without it being a gift subject to the seven year rule. Such gifts must be made regularly, ideally at least every year.

    We can support you with estate planning strategies and solutions

    We’ve shared a few tax efficient strategies and there are far more, especially given the complex nature of your unique financial situation, personal circumstances. If you have any questions you require support with, or you’d like to have a one-to-one consultation, please do get in touch with us.

    Tax when arriving in the UK

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    The UK Statutory Residence Test, and other important things to know

    For anyone arriving in the UK, a key piece of information is to understand the point at which they would be considered tax resident in the UK, and therefore when their liability to UK income and capital gains tax will begin.

    You can read the full article now, or download the PDF version for free below.

    Since 2013 the UK has had a more formal test included within its legislation to determine when an individual will become a resident in the UK for tax purposes.

    It often takes those moving to the UK by surprise that tax residency is determined entirely independently from an individual’s immigration status.

    UK Tax Residence & the Statutory Residence Test

    The test for UK tax residence is known as the Statutory Residence Test (SRT). The SRT has three parts:

    1. Rules under which an individual will automatically be considered UK tax resident
    2. Rules under which they will automatically be considered non-UK resident and;
    3. Then an effective tie breaker test known as the Sufficient Ties Test.

    When are you considered a UK Resident?

    An individual will be considered automatically a UK resident if they spend more than 183 days in the UK, have their only or main home in the UK or work full time in the UK. The concept of having an ‘only’ or ‘main’ home in the UK, or ‘working full time in the UK’ are then defined further.

    An individual who has not previously been a UK resident and is spending time in the UK for the first time, will automatically continue to be a non-UK resident if they spend 45 days or less in the UK or continue to have a full-time job outside the UK and spend 90 or fewer days in the UK with 30 or fewer of these being work days. Again, full-time work outside the UK and what counts as a work day for this purpose are further explained in the rules.

    If an individual doesn’t meet either the automatic UK residence or non UK residence tests, then their residence status will be determined by the Sufficient Ties Test.

    The Sufficient Ties Test looks at a balance of:

    • physical days of presence and
    • four relevant connections to the UK
      • being whether you have spent more than 90 days in the UK in either of the previous two tax years;
      • whether you have worked in the UK for more than 40 days in the tax year;
      • whether you have accommodation available to you in the UK and;
      • whether you have a spouse or minor child who is resident in the UK (known as the family tie)

    As with the other tests, all these important concepts have further specific definitions which are included in the legislation and need to be considered.

    Changes, given the Covid-19 Global Pandemic

    In response to the current movement restrictions across the globe in the wake of the Coronavirus pandemic, HMRC have released additional SRT guidelines, to work in conjunction with their existing guidance for exceptional circumstances. Up to a total of 60 days in the UK which are considered to result from exceptional circumstances do not count for certain parts of the SRT.

    The additional circumstances for COVID-19 that are being considered as exceptional are:

    • Quarantine or self-isolation from following public health guidance or advise from a health professional as a result of the virus
    • Advice not to travel from the UK by recommendation from the Government as a result of the COVID-19 virus
    • The inability to leave the UK as a result of international border closure
    • If your employer requests that you return to the UK temporarily as a result of the virus

    Although individuals may by necessity have to remain unexpectedly in the UK, whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.

    This may be relevant to a number of people arriving in the UK to delay the date of their residence in the UK, or prevent them from being considered resident earlier than would otherwise be the case.

    What are the Split Year Rules?

    Generally, an individual is either resident or non-resident for the whole of a UK tax year. But in certain circumstances, known as the split year rules, it is possible to divide the UK tax year into two parts:

    1. one that is prior to the point at which the individual triggers the condition which made them UK resident and
    2. the part following that point

    Where these rules apply, UK tax residence (and therefore liability to UK tax) only arises in the later part of the year.

    The split year provisions generally apply in circumstances when an individual becomes resident because they have taken up a full-time job in the UK or are accompanying someone who has a full-time job in the UK or when someone acquires a home in the UK.

    It is obviously very important to establish whether you are entitled to benefit from these rules on arrival in the UK, as this may also help line up your tax position in the UK with your tax position in the country you are moving from.

    This can prevent problems arising, from being taxable for a period of time in both countries, and needing to rely on tax treaties to avoid double taxation.

    Tax, for UK Residents

    The UK operates a system of independent taxation, with individuals having their own residence status, having their own entitlement to annual allowances and each being responsible for any taxation in respect of their own income and capital gain.

    This means that situations can arise where one spouse is resident and the other is not, especially where the move is for work reasons for one spouse, and there is children’s education to consider. This can be an advantage where it does occur and present more planning opportunities.

    Tax, for non-UK Residents & Remittance

    For an international individual, whose usual home is not in the UK (what is referred to as being non-UK domiciled under UK tax rules), they may be able to benefit from specific tax rules in respect of their non UK income and gains, known as the remittance basis. Under these rules, the foreign income and gains are only subject to UK tax if brought to or used in the UK.

    Those non-domiciled individuals with jobs that still require them to work partly overseas after arriving in the UK, can also benefit from a further advantage under the remittance basis.

    How does the Remittance Basis work?

    Under what are known as ‘the overseas workdays relief rules’, non-uk domicilied individuals can pay tax on just the proportion of their salary which relates to UK working time. It just needs to be paid into a specific, non-UK bank account, and they must keep the proportion of their salary which relates to non UK working time outside the UK. This relief is available for the first three years of residence in the UK. There are detailed rules to follow when claiming this relief, so advice should be sought on an individual’s particular circumstances.

    The cost of claiming the remittance basis increases over time with it just resulting in a loss of tax free allowances for the first seven years, then increasing to £30,000 per annum and to £60,000 after 12 years. After 15 years of residence, the remittance basis cannot be claimed.

    All the rules outlined above count part years of residence in the time limits so timing of becoming resident in the UK can often be very important.

    Another key point: to benefit fully from the remittance basis (and the fact that the UK will not tax amounts of money that an individual had accumulated before becoming UK resident…), it is important to have bank accounts set up correctly and plan in advance how you’ll pay for UK living costs as efficiently as possible. It also helps avoid what are known as the mixed fund rules that apply to accounts with different sources of income where you are considered to withdraw the least tax efficient amounts first.

    Finally, it is worth being aware that there is no increase for capital gains tax in the value of assets to their market value at the date of arrival. Capital gains tax will potentially be due on increases in value, from the original purchase price and for foreign assets take exchange rate movements into account.

    In summary, to make the most of your move to the UK, the old adage forewarned is forearmed rings true – advance preparation is crucial.

    This is our area of technical expertise, so we’re proactive in seeking new regulation changes, and knowing what’s on the horizon. Everyone we work with has different goals. We honour your unique starting point, proudly offering a truly personal and adaptable service for you.

    For advise and to see how we can add value to your move to the UK, please contact us at Everfair Tax.

    Inheritance Tax Rate and Capital Gains Tax UK Rate 2021 | Actions you can take:

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    Following on from our recent blog, as promised, we’re sharing some actionable next steps for you regarding the potential changes to the Inheritance Tax Rate and also, Capital Gains Tax UK rate.

    If you’d like to read this article later, download the PDF here:

    We previously published an article regarding the potential changes to the Inheritance Tax Rate and also, Capital Gains Tax UK rate in 2021. This will be announced in the March budget. In preparation for that, this is a practical guide to what actions you can take to minimise the impact of any changes.

    Of course, these changes are at present rumours and recommendations, and there is no confirmation about what will happen in March, but it never hurts to be prepared.

    So, what are the next steps?

    Capital Gains Tax Rate UK 2021

    It has been suggested that income tax rates will be raised to as much as 45% and it is likely the CGT will increase to match it. To reduce your Capital Gains Tax bill here are some practical steps.

    1. Use your £12,300 allowance which cannot be carried forward to future years. A married couple can therefore raise £24,6000 a year with no CGT liabilities.
    2. Use your annual ISA allowance which currently sits at £20,000. All personal CG are tax-free if on ISA investments.
    3. Don’t sell assets later in life as this could mean that Capital Gains Tax will be due as well as Inheritance Tax.
    4. Consider setting up an all-in-one fund for multi-assets as the fund can sell holdings and therefore won’t be liable for CGT.
    5. Ensure any losses are offset against gains which can reduce the amount of CGT owed.
    6. Manage taxable income through pension contributions or charitable donations.

    Inheritance Tax Rate 2021

    The nil-rate band of £325k is likely to change in the March budget as well as changes to rules regarding unused pension pots. However, these practical steps could help you lower the amount of Inheritance Tax your beneficiaries will be liable for.

    1. You can leave everything to your spouse, or civil partner in your will without there being any Inheritance Tax. You are also able to pass on unused tax allowance to them.
    2. Give gifts whilst you are alive to loved ones. There are of course some caveats and if you’re not certain, give Everfair a call. But each person can give away £3000 of gifts each year without it being added to your estate. If you don’t use your allowance one year it carries over the next.
      1. Additionally, you can give £1,000 as marriage or civil partnership gifts which increases for grandchildren, great-grandchildren or your own children.
      2. You are also able to give random gifts of £250 to individuals as long as you have not gifted them something else in the same tax year.
    3. Leave part of your estate to charity as this means it will be exempt from Inheritance Tax. If this in turn brings your estate value to less than £325k then that will also be exempt.
    4. Write pensions and life insurance policies in trust. If this is the case then any pay-outs are not considered as part of your estate. Instead they will be passed to your beneficiaries and won’t be liable for Inheritance Tax.
    5. Bequeath your house to your children, stepchildren or grandchildren which will include an additional allowance of £175,000.

    If you want help in regard to identifying which of these steps will be relevant to you and your situation as well as implementing any of them, please give us a call or email and one of our advisors will be very happy to share some practical, unbiased and professional advice.