When leaving the United Kingdom, the position relating to an individual’s income tax and capital gains is comparable to that of a long-term non-resident. However, if a person who was previously a resident becomes a non-resident, but returns here within five years, the capital gains developed in the interim period become subject to taxation again in the first year of residence (renewed) in the United Kingdom.
In the year of departure, people can benefit from privileged treatment (“split year treatment”), so only foreign income and earnings before departure from the UK will be relevant to the UK tax position.
Points should be considered regarding the uk inheritance tax :
· An individual domiciled in the United Kingdom remains subject to the English law on inheritance tax regardless of the length of his absence;
· An individual who is not domiciled and who has never been considered domiciled in the UK according to current legislation remains outside the scope of the English succession tax for foreign assets but is subject to the reference legislation for assets in the United Kingdom.
In the United Kingdom, it is essential to be aware of one’s domicile status as this can have an important effect on the overall tax debt and important repercussions on the treatment of hereditary assets.
First, it is important to consider the position of long-term non-residents; in other words, those who are no longer resident in the United Kingdom and who have not been resident for the previous five years. Their domicile does not change the income tax due or the tax treatment of capital gains.
a) Income tax
Regardless of a taxpayer’s domicile, UK income tax must be paid on rental income from properties located in the UK, on income from work and on revenue from most of the business activities carried out here. Other sources of income in the United Kingdom, such as bank interest and dividends can be considered as income not forming part of the individual tax base (the so-called “disregarded income”) based on the overall subjective tax situation. However, income from certain government securities is tax-free for residents abroad in all circumstances. The double taxation treaty in question should be consulted according to the particular case.
The non-resident taxpayer must, therefore, calculate his tax liability in the United Kingdom on two grounds:
a) The first is to include all revenue from the United Kingdom in the individual tax base to calculate the non-tax threshold (the so-called “personal allowance”) as if it were a resident in the United Kingdom, with the possibility of reducing the tax burden taking into account any taxes already deducted at the source.
b) The second is to exclude any “disregarded” income as indicated above, but not to take advantage of the personal allowance (gross income non-tax threshold) and without any possibility of compensating the taxes already deducted at source on the income in question.
The individual can then choose the most favorable basis, taking into account any possible exemptions under the relevant double taxation treaty.
When determining taxable employment income in the United Kingdom, the duties performed here in connection with foreign employment can be ignored if they are ancillary to the principal employment.
Not all non-residents are entitled to a Personal Tax allowance (the total gross income amount of the individual not subject to taxation – to date ? 11.850 annually) in the United Kingdom. The main categories of people who have this right are the citizens of a State party to the European Economic Area (EEA), the employees of the Crown, their widows and residents of the Isle of Man or the Channel Islands.
A non-resident individual is not taxable on income derived abroad, even if he is transferred to the United Kingdom.
b) Capital gains tax and inheritance tax
Most capital gains deriving from the sale of assets held in the United Kingdom by non-long-term residents are not taxable. However, gains on assets related to a trade, profession or vocation in the United Kingdom are subject to capital gains tax. In addition, earnings from residential properties in the UK are taxable in the UK, regardless of the person’s residence or domicile status.
All properties of persons domiciled in the United Kingdom are subject to inheritance tax in the event of death.
Non-residents and non-domiciled in the United Kingdom are taxable only on their assets located in the United Kingdom in the event of death.
Arriving in the UK
If a taxpayer is deemed to have a dual residence, it is necessary to refer to the England – Italy double taxation treaty to confirm the correct treatment of all income, earnings, gifts, and legacies.
For people who become residents of the United Kingdom, the fiscal year in which they arrive can be divided into two different periods (pre and post-arrival). In that case, only the foreign revenue and earnings that develop after arrival are relevant to the individual tax position in the UK.
a) Income tax and capital gains tax
An individual domiciled in the United Kingdom is subject to tax on his income and earnings on a worldwide basis in any year for which he is resident in the United Kingdom (the so-called principle of “Worldwide Taxation”).
An unrelated newly arrived individual is automatically taxable only on income produced in the United Kingdom. Any income and foreign earnings can be taxed together with the income produced in the United Kingdom or treated according to the principle of Remittance Basis (the subject of my previous article ” Residence and domicile in England: the concept of Remittance “).
According to the rules applicable from 6 April 2017, people who were born here and who had a “Home Place of Origin” in the UK but have since acquired another home consider themselves fiscally domiciled in the UK as soon as they return to reside in the UK. This is independent of their real intentions or their true home.
Almost all UK residents are entitled to a Personal Allowance in the UK. However, if the Remittance Basis is selected for a particular fiscal year, non-domiciled persons are not entitled to it unless they have less than 2,000 of income not transferred here in the fiscal year. The double taxation treaty can vary the individual situation and must be considered on a case by case basis.
Losses realized outside the United Kingdom by non-domiciled persons using the Remittance Basis are generally not permitted for tax purposes in the United Kingdom unless a request for remission is made.
b) Inheritance tax
For most people arriving in the UK, the inheritance tax position remains the same as that of previously treated non-residents.