In recent years many wealthy non-EU citizens have wished to take up residence in the EU or in countries such as Switzerland. Many of those people come from Russia and the CIS states, China and, more recently, the Middle East. Many have accumulated significant wealth in a relatively short period of time and are seeking to diversify this wealth whilst having residence rights in a jurisdiction of economic and political stability.
In many jurisdictions, obtaining residence visas can be fraught with red tape, delays, quota restrictions and other hidden difficulties, often resulting in refusals of such applications. With the assistance of verFides, relocation of residence to the UK can be straightforward.
The UK offers a settled but rewarding lifestyle. The enviable tax concessions are complemented by a world-class private education system, a highly developed financial sector, a sophisticated and varied cultural scene and the UK's status as an international travel hub.
Running a business from the UK still affords reputation and prestige. As well as tax breaks for non-domiciled individuals taking up residence, there is a very pro-business Government with a committed agenda to lower tax rates for businesses and make the UK the jurisdiction of choice for multi-national enterprises.
Obtaining an Investor Visa for the UK
The Tier One Investor Visa is becoming more and more popular amongst wealthy individuals and their families as a means of obtaining UK residence. The UK Government has recently made the process much more flexible as part of its stated aim to encourage entrepreneurs and investors to settle in the UK.
The main features of the Tier One Investor Visa are:
- The applicant must have £1M of their own funds (including assets of spouse or partner) or £2M of personal wealth with borrowings from a UK bank of £1M
- The capital must be invested within 3 months of arriving in the UK
- 75% must be invested in "specified investments" – generally UK government bonds, shares or loan capital in active UK trading companies
- This can include an investor's own business
- The remaining 25% can be invested in unmortgaged UK property, cash or significant works of art
- The investor may bring spouse, partner and dependent children under 18
- No English language requirement
- The investor and dependents may work or study in the UK
- Can spend up to six months of the year outside the UK
- Can lead to indefinite leave to remain and citizenship
Application Process
The application process is a very simple one and is typically completed within 2 to 4 weeks. The application is made at a British Diplomatic post in the country of residence. Applicants can apply on-line then attend an appointment to submit biometric data and supporting documentation. The whole process is very speedy and efficient and reflects the Government's desire to remove barriers for investment into the UK.
Obtaining Settlement
Obtaining settlement or "indefinite leave to remain" in the UK is the next stage. Granting of settlement removes any visa time restrictions.
Investors and their dependents may apply for settlement after 5 years in the UK, although this is accelerated to 3 and 2 years for investments of £5M and £10M respectively. It must be shown that the investor has been "continuously residing" in the UK, which means present for at least 185 days in each 12 calendar months.
Applicants over 18 and under 65 must pass a "Knowledge of Language and Life in the UK" test and must also pass a criminal record test.
Obtaining UK Citizenship and a UK Passport
After 5 to 6 years of residence, application can be made to be naturalised as a British Citizen and have the right to a British passport. Not only does this give permanent right of abode in the UK but also EU-wide travel and residence rights, as well as visa-free access to other countries such as the US.
The requirements are more stringent for citizenship than for the investment visa: it will be necessary to demonstrate that the applicant has not left the UK for more than 90 days a year in the previous 5 years. There is also a general requirement to be of good character.
Remittance Basis of Taxation
Non-domiciled individuals resident in the UK may choose, on an annual basis, to be taxed on the "remittance basis".
Domicile is a distinct and separate concept from residence. A person's domicile is generally (though not exclusively) determined by place of birth; an individual is normally deemed to have inherited their father's domicile, known as a "domicile of origin".
The remittance basis of tax restricts the UK tax liability to UK source income and gains, plus any non-UK source income and gains brought into (remitted) to the UK. Thus, any non-UK income and gains retained outside the UK (for instance in an offshore bank account) will not be taxed. This is a major tax incentive for those with significant sources of income outside the UK. Depending on the duration of residence there may be an annual charge to access this basis of taxation; however, this is often not material when compared with overall tax savings.
Many UK resident non-domiciled individuals will wish to bring some non-UK income into the UK in order to fund their lifestyle and / or purchase property. With careful planning, the UK tax on such sums can be reduced or eliminated. In particular, from April 2012 funds remitted to the UK for investment in a UK commercial business will be exempt from tax.
For further information on the remittance basis of taxation and tax planning steps to be considered before taking up UK residence, please see our separate briefing sheets.
Becoming UK Tax Resident
The first thing to mention is that the UK domestic tax rules regarding residence are in a state of flux, with a consultation currently underway proposing new statutory rules in place of the current mix of statutory provisions, case law and HMRC guidance. The new rules, when finalised, are likely to be introduced in April 2013.
In the meantime, the basic UK statutory position is that an individual will be UK tax resident if he spends more than 183 days in a tax year in the UK. An individual may also be considered resident if he makes habitual and substantial visits to the UK over a number of tax years – typically at least 90 days a year over 4 consecutive years.
Intention is a key concept in determining UK residence. If you come to the UK with the intention of staying indefinitely then you will be considered resident from your day of arrival. Similarly, if your intention is to visit the UK for at least 90 days per year over a number of years, you will be considered UK resident from the date that intention became clear.
It is generally preferable for a non-domiciliary to become "resident but not ordinarily resident" on coming to the UK, as this status affords a preferable tax treatment for the first three years. It will be necessary to demonstrate that there is no firm intention to remain for more than 3 years at the date of arrival. We can advise further on this. You will automatically become ordinarily resident if you are resident here for more than 3 years.
Breaking Overseas Tax Residence / Becoming UK Treaty Resident
It is usually beneficial to lose your overseas tax residence on coming to the UK. It is typically more difficult to lose a tax residence that to gain one, particularly where close ties remain with the country of origin. Local tax advice should be sought in this regard.
Where both the UK and the country or origin consider the taxpayer to be resident, the taxpayer will be considered "dual resident" and may be taxable in both states. However, where there is a tax treaty in place between the UK and country of origin, it will typically contain a "tiebreaker clause" which allocates fiscal residency to one state only according to a set of criteria.
It is therefore important that sufficient steps are taken to ensure that "treaty residence" is awarded to the UK in the light of a challenge by the authorities in your country of origin.
The standard provisions in a treaty tiebreaker clause list a hierarchy of tests in deciding such residence:
- The individual will be considered resident where he has a permanent home available to him;
- If a permanent home is available in both states, he will be resident where his personal and economic relations are centred;
- If the position is still undecided, residence will be awarded to the state where he has a habitual abode;
- If there is a habitual abode in both states, he will be a resident of the state of which he is a national;
- Otherwise the residence position will be decided by mutual agreement between the tax authorities of both states.
It can be seen from the above that is will be important to consider such matters as accommodation, family and business arrangements.
Tax Planning Considerations
There are a number of important tax planning considerations to be considered before taking up UK residence, in order to ensure that your future UK tax position is optimised.
- Presuming you wish to be taxed on the favourable "remittance basis", bank accounts should be carefully restructured in order to segregate sources of income. Most importantly, a core capital account should be established. Taking these simple steps is crucial in order to reduce future taxable remittances.
- A suitable structure for holding UK property should be established for inheritance tax mitigation purposes. Consideration should be given to selling (e.g. within the family) any existing UK properties to uplift base cost to market value.
- Consideration should be given to settling offshore trusts and / or establishing non-resident companies in order to shelter future income or gains and also in anticipation of future deemed inheritance tax domicile. UK anti-avoidance provisions can make it very difficult to implement such structures when UK resident.
- Family business structures should be reviewed to ensure that there are no UK management and control issues and that income flows are tax-optimised.
- Employment and consultancy contracts with family businesses should be carefully structured. A dual contract system may be advantageous and there may be scope for tax-free provision of living accommodation.
It is therefore important that advice is taken well in advance of becoming UK resident in order to ensure maximum tax efficiency and to avoid common traps.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
