31 January is the deadline for submitting your tax return for the previous year. What if you didn’t know or forgot about it? One on the important points to remember is that your immigration and tax statuses are not directly linked with each other; irrespective of your visa type or any other document you can become a tax resident in the UK.
If you spent in the UK more than 46 days in a tax year (from April 6 till April 5 the following year), you need to establish your tax status, either yourself or with professional help, via Statutory Recidence Test (SRT). If based on the test results you are classed as tax resident, two main rules apply to you like to any other UK resident:
- You are tax resident for the whole tax year from April 6 till April 5 and you must declare all your income received during that period.
- You must declare and pay taxes on all your worldwide income irrespective of the country and source of its origin.
However, there might be exceptions to these two rules based on personal circumstances, e.g. split-year treatment when you don’t need to pay taxes for the whole year, or remittance basis.
Pre-arrival planning for clean capital
It’s a common question – how am I going to sustain my lifestyle in the UK? The answer is simple: all income and gains that arose before you became UK tax resident make up clean capital. However, it must be planned very carefully as not all assets can be included in clean capital.
Main requirements to the clean capital:
- monetary funds only;
- funds must belong to you;
- funds must be in your personal bank accounts in any country.
It means that if you are planning to dispose of any of your assets, it’s advisable to do so before you become UK tax resident. Otherwise you will have to pay capital gains tax on sold property or shares, like any UK tax resident. And the tax rate is not something you can disregard easily!
If you have securities portfolio it’s important to consider its valuation, and if there is profit do the sell-buy transaction, and if there is loss keep them as you might be able to account them in the future profit (i.e. deduct from taxable amount).
Domicile or non-domicile
There is a special tax treatment for non-domicile residents (non-doms). Domicile is a general legal concept that refers to citizens of any country, according to English law. It describes the country where you and your father were born.
If you weren’t born in the UK, you are domiciled in another country. And you will always be non-dom in the UK. Being a non-dom you are allowed to choose between taxation on general arising or special remittance basis. The latter means that you have to declare and pay UK taxes on your income received in or remitted to the UK, and used to live off.
There are some cons against using remittance basis. Normally the first £11,500 of annual salary are tax-free, for example if you are an employee on a payroll. However, if you claim remittance you lose this tax-free allowance. Besides, from 2017 the period of time when remittance can be used is limited. If you are tax resident for seven years in a row, you will be charged one-off £30,000 in the eighth year and £60,000 in the thirteenth year. You cannot claim remittance from the sixteenth year; at that point you become a so called deemed domicile and have to pay taxes on all your income worldwide.
It’s important to remember that you can claim remittance only when you submit a tax return. You can’t just claim it in your mind.
The deadline for submitting tax returns is 31 January the following year after the reported tax year. For example, tax return from 6 April 2016 to 5 April 2017 must be submitted and all dues paid before 31 January 2018.
Even if you are not UK tax resident and you have income in the UK, you must declare it and pay taxes. It includes property ownership, renting income and capital gains (is the value has risen), for which you have to pay taxes. The same applies to financial, investment and development activities. In any case it’s better to get professional help to discuss all potential tax liabilities and consequences.
We’ve described main taxation principles in the UK. In real life this process is not as simple and straightforward as it may seem, it has a complex structure with many relevant nuances. If you think you can be UK tax resident and you are not sure about your tax liabilities, Imperial & Legal strongly recommends getting a professional consultation as soon as possible to avoid any problems in the future.
We will also help you arrange everything for your smooth transition to the UK, choose and get the right type of visa, minimise fees and duties when buying and owning a property.
To discuss your requirements, please contact our specialists or call us on +44 (0)203 490 41 21.