The UK has long been attractive to foreign investors and high net worth individuals (HNWIs) looking to expand their financial profile and, more significantly, as their main place of residence, say Simon Walsh, partner at Oury Clark Solicitors, and David Taylor Rea, partner at Oury Clark Chartered Accountants.
The key drivers for this are the UK’s sophisticated and mature legal system, its balanced financial regulatory regime and a tax code that provides various reliefs for foreign investors and HNWIs.
Add to this the devaluation of sterling following the Brexit vote, along with the ease of conducting business in the English language, and it becomes increasingly apparent that the country will remain a destination of choice – irrespective of the decision to leave the EU, in whatever form that takes.
Tax breaks
Perhaps the most important aspect of the UK tax regime for HNWIs wishing to relocate is the availability of the remittance basis of taxation.
Provided they can demonstrate their domicile of origin is outside the UK, then for the first 15 years that they live in the country, the individual need only be taxed on their UK income and gains plus any non-UK income and gains remitted to the UK.
Although there is a charge for using the remittance basis, this is graduated: for the first seven years the charge is nil, for the next five years there is a flat charge of £30,000 ($39,500, €33,500) pa and for the following three the charge is £60,000 pa.
After 15 years the remittance basis ceases to be available and individuals are then taxed on their worldwide income and gains. Accordingly, there are several actions an incoming HNWI should take prior to moving to the UK on a permanent basis.
Given that HM Revenue and Customs will only tax the income and gains of an incoming HNWI from the date of their arrival in the UK, it is important that their financial assets are properly aligned at that date.
This will then enable them to bring funds into the UK that can be classified as capital rather than income or gains.
The advantage in bringing in capital is that it is not treated as a taxable event. Thus, in the case of a bank account, the funds therein should be frozen prior to relocating. Income and gains previously credited to that account should in future be paid into a new or different account and used to pay overseas expenses.
This will leave the original account as a capital account from which funds can be freely remitted to the UK without incurring a tax charge.
Investing in property
Those wishing to purchase residential property in the UK should take into consideration the following tax matters:
- Assuming the purchase represents a second home there is a possible exposure to stamp duty land tax on purchase, at a marginal rate of 15%.
- The ability to deduct interest costs from rental income on properties that are let out is rapidly being curtailed.
- Any profit on disposal of a UK property, unless it is demonstrably the individual’s main residence, will be liable to tax at 28%. Profits on disposal of a main residence are exempt from capital gains tax.
- Any property located in the UK is subject, on death, to inheritance tax (IHT). IHT is effectively a combination of estate duty payable at death (40%) and a gifts tax payable on lifetime gifts (20%). Although historically there have been several ways in which UK property could be held without exposing it to IHT, these avenues have largely been closed.
- UK properties with a valuation of £500,000 or more that are enveloped within a company will be subject to a fixed annual tax charge
Having said that, the devaluation of sterling still makes UK real estate an attractive investment proposition for overseas investors and HNWIs.
Financial assets
Although investing in UK financial assets is relatively straightforward, there are a couple of issues of which overseas investors and HNWIs coming to the UK should be aware:
- Mutual funds – the UK tax code classifies mutual funds as either “reporting” or “non-reporting”. For reporting funds, any profit on disposal is subject to capital gains tax, with gains taxed at 20%; profits on disposal of non-reporting funds are taxable as income, at rates of up to 45%.
- Accrued appreciation in financial assets – where there is significant appreciation in financial assets held at the time of relocation to the UK, provided there are no tax implications in the individual’s home country, these should be sold prior to arrival. They can subsequently be repurchased, giving the assets a higher base cost, thereby mitigating either in whole or in part any UK tax charge on a future disposal.
Which visa?
Another aspect to be considered is which is the most appropriate visa to apply for to live and work in the UK. Three common types are:
- Tier 1 Investors are required to demonstrate that they have funds of at least £2m to invest in the UK in government bonds, share capital or loan capital in active and trading UK-registered companies. There are accelerated avenues to settlement after two years if an individual invests £10m or three years if they invest £5m.
- Tier 1 Entrepreneurs are required to invest at least £200,000 of their own funds or funds obtained from a third party in a new or existing business in the UK.
- Tier 1 (Exceptional Talent) visas are available to individuals who are endorsed in their field in science, humanities, engineering, medicine, digital technology or the arts as either a recognised leader (exceptional talent) or an emerging leader (exceptional promise).
These visa types also permit a HNWIs partner/spouse and children under the age of 18 to join them in the UK. They all lead to settlement in the country, subject to meeting certain residency requirements and the ongoing requirements of each individual visa.
