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New conditions for foreign investors living in the United Kingdom
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New conditions for foreign investors living in the United Kingdom

The UK Investor Visa has always been popular with Russian nationals since the UK is a multicultural country with something for all tastes and where the rule of law is upheld and observed by all.

However, some investors may now think twice before staying in the UK since the government is discussing the possibility of introducing amendments to the rules by which incomes of non-domiciled residents are taxed. the proposed amendments would see all those who have been UK tax residents for 15 of the last 20 years lose their special status, meaning they will have to pay taxes on both local and foreign incomes.

The fate of the initiative is still uncertain: the UK Parliament approved the Finance Bill 2017 this April, but it did not include provisions on non-domiciled residents. In the middle of June, the Chartered Institute of Taxation issued recommendations on the time frame for the enactment of the amendments, clearly indicating the possibility to review the rejected changes. If the recommendations are taken into account, the new rules will come into force as early as April 2018. *

* Every non-domiciled resident will be able to request that the new rules apply to them from 6th April 2017. The Chartered Institute of Taxation representatives consider this decision justified, as some of the taxpayers have already organised their businesses in a different way in anticipation of changes being made this April.

Who is considered a "domiciled resident"?

Two concepts exist in the UK: "residence" and "domicile". Tax residence is determined by the number of days spent in the country and depends on a number of factors: for example, on whether the family of the individual resides in Britain, whether the individual’s only home is located in the UK and upon other circumstances.

The term “domicile” is used to mean the country of "habitual residence": the state the investor regards as their home and where they plan to return. An individual's domicile is derived from their father’s domicile ("domicile of origin”), but can be changed from the age of 16 by leaving the country with no intention to return. What matters in this case is the individual's willingness (or lack of) to return to their home country: even residing abroad over an extended period of time is not recognised as grounds for automatic loss of UK domicile status. Therefore, an investor can be considered a UK tax resident, live in the country for a long time but have a foreign domicile.

Determining an individual's domicile is important when calculating income, capital gain and inheritance tax liabilities.

As a general rule, UK tax residents are obligated to pay taxes on their total income and capital gains worldwide. However, non-domiciled residents can enjoy a special concession (remittance basis of taxation). in this case, UK tax is only levied on income obtained from sources within the UK and on capital gains from the disposal of assets located in its territory. All other incomes and assets are exempt of local taxation.

Within the first seven years after becoming recognised as a UK tax resident, this concession can be obtained for free by making an application. Following this seven-year period, it becomes necessary to pay for the concession: £30,000 if the person has been a UK tax resident for seven of the nine previous tax years; and £60,000 if the investor has been holding this status for twelve of the fourteen previous tax years.

What other changes do the amendments imply?

The changes will also affect property ownership.

Today, acquiring a property in the name of a foreign (non-UK) company exempts the investor from paying taxes on inheritance or capital gains. If the corresponding amendments are approved, in the event of a stock sale or the death of the proprietor of the company owning property in the UK, the taxes will have to be paid there.

For the time being, the planned changes do not affect property transferred to a trust prior to the enactment of the amendments.

The rules will also be tightened for those who were born in the UK but have exchanged their UK domicile for a foreign one. According to the reform project proposed, if such people return to their country of birth and acquire tax resident status there, they will automatically be considered domiciled in the UK. This means that they will have to pay the UK income and capital gains taxes. An additional criterion is to be introduced for inheritance tax: those who reside in the UK for at least one of the two previous years will acquire UK tax resident status. Under these circumstances, investors will have to calculate the tax consequences not only for themselves but also for their children.

Originally published on everyinvestor.co.uk

Ekaterina Shabalina, Tranio lawyer

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