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The UK versus Zero-Tax Jurisdictions

Posted by: Gherson Private

Some countries do not recognise tax residence in countries with zero tax and continue to treat individuals as tax resident in the country they have moved from.

The UK is not a zero-tax jurisdiction, however, individuals from overseas can still live in the UK for as long as 15 years and pay little or no tax here.

Zero Tax Jurisdictions and Deemed Residence

The UK versus Zero-Tax JurisdictionsFor example, with effect from 1 April 2020, India introduced the concept of deemed residency.

The new rules provide that an Indian citizen with India-source taxable income in excess of INR 1.5 million during the tax year in question will be deemed to be a resident of India if they are not liable to tax in any other country.

The term 'liable to tax' is defined to mean that the person is liable to tax under the laws in force in any country.

Jurisdictions such as Dubai, Monaco and some of the Caribbean Islands generally offer zero tax, so it may be that residency in such jurisdictions would not be a good idea from a tax perspective for citizens of countries like India, or countries with similar rules.

The UK, on the other hand, is not a zero-tax jurisdiction.

The UK remittance basis

However, most individuals from overseas who become resident in the UK can take advantage of something known as the ‘remittance basis’ of taxation. If you are eligible for the remittance basis, you are only taxed on your non-UK income and capital gains to the extent that they are brought into the UK (and any UK income and capital gains).

Therefore, if you do not have any UK income and gains and you do not need to bring any of your non-UK income and gains in to the UK to live off, then you can be tax resident in the UK but potentially pay no tax at all here.

This is a huge benefit and one of the many reasons that make the UK an attractive place for people to move to.

The key features of this tax regime are summarised below.

How do I know if I am able to take advantage of this special tax treatment?

Your UK tax treatment is decided by your ‘domicile’ status and your ‘residence’ status. If you are resident but not domiciled in the UK, you receive special tax treatment.

Domicile

You are generally domiciled in the country that you have substantial connections with and consider to be your permanent home. In most cases, you are domiciled where your father is domiciled when you are born. It is quite difficult to change this. Generally, you only become UK domiciled if you decide to remain in the UK permanently or indefinitely. If you intend to return to your country of origin (or elsewhere outside the UK), at some stage you will almost certainly be considered non-UK domiciled (a ‘non-dom’).

Residence

Tax residence, on the other hand, is determined using a test based on the number of days you spend in the UK. Anyone who spends 183 days or more in any tax year in the UK will be UK resident. However, some people who spend less than 183 days in the UK can also become tax resident. Factors like having family in the UK or having accommodation in the UK can affect this. The more connecting factors you have, the fewer days you can spend in the UK without becoming tax resident.

What is the remittance basis of taxation?

If you are UK-resident but not domiciled, you will probably be able to be taxed on the ‘remittance basis’.

The remittance basis does not apply automatically and must be claimed when you file a UK tax return. Also, it can be claimed in some tax years and not in others. If the remittance basis is claimed, you will only be taxed on foreign income and capital gains to the extent they are brought in (or enjoyed in) the UK.

For the first seven tax years of residence there is no charge for using the remittance basis. However, once you have been resident for 7 out of the previous 9 tax years, an annual fee of £30,000 is payable. Once you have been resident for 12 out of the previous 14 tax years, an annual fee of £60,000 is payable. The remittance basis is not available once you have been resident for 15 out of the previous 20 tax years.

The rules are complicated and it is important to take proper advice to ensure that you do not inadvertently make a taxable remittance.

How can we help?

Gherson can help with a wide range of tax and estate planning matters. We also have extensive experience of working with HMRC and dealing with HMRC investigations. If you would like to speak to us in respect of any of the issues raised in this blog or about your specific circumstances, do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on TwitterFacebook, or LinkedIn to stay-up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2021

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