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Expatriation – A comparison of
tax issues in the US & UK in an
increasingly mobile world
Richard Cassell
UK Perspective
What are the trends?
• It is easier to leave the UK since the UK has a residence/domicile based system
• The domicile rules remain intact albeit with a remittance basis charge after 7 years
• There have been predictions of an exodus of fund managers and other residents which have proved to be more of a small trickle than a stampede. The UK is still a benign environment. Setting up a business in Switzerland is not easy.
UK Perspective - continued
• The current government pledged to reduce net immigration but has only succeeded in reducing the number of overseas
students. Data from the government shows that net migration fell below 540,000 in 2011-2012 with the number leaving the UK increasing from 118,000 to 127,000. Overall, long term
immigration figures are not moving significantly and continue to average 180,000.
• Relevant factors include not only UK tax issues but also European tax regimes and mid-east politics
Current position
• Unclear, uncertain, unsatisfactory
• Future
• Consultation paper published 17 June 2011
• Consultation period ends 9 September 2011
• Draft legislation published 21 June 2012
• Revised draft legislation published on 12 December 2012
• Takes effect from 6 April 2013
Residency – the future
Types of taxpayer:
• Arriver
• Not UK resident in any of the previous three tax years • Leaver
• Resident in one or more of the previous three tax years • Full time worker abroad
• 35 hours per week (contractual or customary)
• For at least one tax year
• No significant breaks from overseas work
• Fewer than 31 days’ work in the UK
• Fewer than 91 non-working days in the UK
Non-residence test
• Automatic non-residence test
• Arriver - Fewer than 46 days in the UK
• Leaver - Fewer than 16 days in the UK
Residence test (automatic residence test)
• Automatic residence test • 183 days or more in the UK
• Only home in the UK
Residence test (sufficient ties test)
• Sliding scale of days of presence will apply, depending on the number of ‘ties’ • Ties: • family • accommodation • work • 90-day • country
Residence test (sufficient ties test) – Family
If your family is UK resident
• Spouse or civil partner • Married or common law
• Not if separated (by court order, or where it is likely to be permanent)
• Minor children
• With whom you spend more than 60 days in UK (only)
• Child’s residence ignored if in UK for school only and spends less than 21 days of holidays in UK
Residence test (sufficient ties test) – Accommodation
If you have available accommodation in the UK
• test is ‘availability’, not ownership
• only if used as a residence
• only if available for a continuous period of more than 91 days
• only if individual spends at least one night in it during tax year (16 nights if the accommodation is home to a close relative)
Residence test (sufficient ties test) – Work
If you work in the UK
• Working in the UK for 40 days or more during tax year
Residence test (sufficient ties test) – 90-day
If you have spent more than 90 days in the UK in either of the preceding two tax years
Residence test (sufficient ties test) – Country
If you have spent more time in the UK than any other country
• Count days using midnight test
Arrivers
Days in the UK Test
Fewer than 46 days Always non-resident
46 – 90 days Resident if individual has 4 ties (otherwise not resident)
91 – 120 days Resident if individual has 3 ties or more (otherwise not resident)
121 – 182 days Resident if individual has 2 ties or more (otherwise not resident)
Leavers
Days in the UK Test
Fewer than 16 Always non-resident
16 - 45 days Resident if individual has 4 ties (otherwise not resident)
46 – 90 days Resident if individual has 3 ties or more (otherwise not resident)
91 – 120 days Resident if individual has 2 ties or more (otherwise not resident)
121 – 182 days Resident if individual has 1 tie or more (otherwise not resident)
Ordinary residence - future
• To be abolished (but grandfathering provisions)
• Statutory provision to be made for overseas workday relief • restricted to non-domiciled individuals who claim the
remittance basis
• not available if taxpayer has been UK resident in any of previous 3 tax years
Taxation of UK residential property
Who is liable?
• New rules Applicable to UK residential property owned by ‘Non-natural persons’
• ‘Non-natural person’
• Companies, collective investment schemes and partnerships which have a company as a partner
• ‘Natural person’
• Trusts, whether onshore or offshore and whether or not they have personal or corporate trustees
Annual Residential Property Tax (‘ARPT’)
Taxable value of property ARPT
£2m to £5m £15,000
£5m to £10m £35,000
£10m to £20m £70,000
Greater than £20m £140,000
• 'Chargeable period' will run from 1 April to 30 March • Properties will need to be valued every 5 years
Annual charge reliefs
• Properties exploited in a property development, trading or rental businesses provided that the property is not occupied by a 'non-qualifying person'
• Properties available for use or enjoyment by the public for at least 28 days a year
• Properties owned to provide employee accommodation
• Properties held by charities for charitable purposes
• Farm houses of a 'character appropriate' to the land being farmed and occupied by farm workers
SDLT
• Consistency with the annual residential property tax • properties owned by a ‘natural person’ – 7%
• properties owned by a ‘non-natural person’ – 15%
• Will be amended to incorporate the same reliefs as will apply for the annual residential property tax, but only with effect from the date of Royal Assent of the Finance Bill 2013 (expected in
June/July 2013)
• Payment of the 7% rate conditional on the appropriate relief applying for 3 years from purchase.
Capital gains tax
• Consistency with the annual residential property tax – only
applies to properties owned by a ‘non-natural person’ and reliefs apply
• Only payable on gains attributable to increases in value post 6 April 2013 - rebasing
New purchases – occupied properties
• Outright
• Offshore company held by an offshore trust
• Offshore trust (with no holding company)
New purchases – occupied properties
Outright ownership
• SDLT
• 7%
• Capital gains tax
• principal private residence relief • Income tax
• no issues • Inheritance tax
• exposure on death of owner regardless of principal's residence or domicile
New purchases – occupied properties
Offshore company held by an offshore trust
• SDLT
• 15%
• Annual charge
• Capital gains tax
• immediate charge on sale of property (but not company shares)
• Income tax
• benefit in kind rules • Inheritance tax
New purchases – occupied properties
Offshore trust (with no holding company)
• SDLT
• 7%
• Annual charge
• trustees excluded
• Capital gains tax
• trustees excluded
• Beware section 87 rules on any sale of the property
• Income tax
• no issues
• Inheritance tax
New purchases – occupied properties
Non-UK partnership with individual partners
• SDLT
• 7% provided no corporate partner
• Annual charge
• Excluded provided no corporate partner
• Capital gains tax
• transparent
• Income tax
• transparent
• Inheritance tax
• may still be exposure on death of partner regardless of partner's residence or domicile
Restructure?
• Depends on the facts
• Sometimes better to pay the annual charge in order to protect against IHT exposure
Is the UK still an attractive destination for foreign
nationals?
• Simple answer is yes:
• Remittance basis of taxation for non domiciliaries
• No charge for the first seven years
• £30,000 if resident for seven of previous nine years • £50,000 if resident for twelve or previous fourteen years
• No CGT on the sale of UK situs property by non resident individuals
• ARPT easily avoidable
• If more beneficial to continue to hold via a company the ARPT is
substantially less than wealth taxes in France for example (top rate is 1.8% on entire wealth not just property)
Is the UK still an attractive destination for foreign
nationals
• Les Français disent oui!
• Estimated 400,000 French nationals in London alone
• Substantially less tax in the UK (France top rate of income tax is 75% compared to the UK’s 45%)
• London now France’s 6th biggest city based on number or people
