Patrick Harney
Partner, Private Wealth and Tax
Hello, we’re now a number of weeks into the UK’s new tax regime for internationally connected individuals and thankfully, we’re still seeing lots of interest from US persons both coming to the UK and ones that already kind of staying in the UK. Why do you think that is?
Hannah Dart
Of Counsel, Private Wealth and Tax
Well US persons are in an almost unique situation. They are always going to have worldwide tax exposure on their income and gains so they can’t escape that just by moving to a low tax jurisdiction or even being fiscal nomads and being taxed resident not in any jurisdiction. So whenever we’re advising US/UK connected people, our starting point is always to avoid double economic taxation as between the two countries and under the new tax regime and in combination with the two US/UK double tax treaties, there are still plenty of opportunities to do just that.
Patrick Harney
Partner, Private Wealth and Tax
One point that often concerns clients coming to the UK is the UK inheritance tax and with the, the new rules, individuals that are resident in the UK for ten out of the previous twenty years are going to be subject to inheritance tax under worldwide estates, which is quite a lot at 40%. Now we know that US citizens are already subject to estate tax so what do they do to kind of address the UK inheritance tax consequences of being here?
Hannah Dart
Of Counsel, Private Wealth and Tax
There’s definitely still a lot of opportunities and especially the US/UK estate tax treaty can be really useful here. A well planned combination of trusts and use of the treaty means that it is possible in the right circumstances for a US individual to compliantly shelter all of their assets other than any UK real estate or business property of a UK permanent establishment from inheritance tax.
Patrick Harney
Partner, Private Wealth and Tax
Of course it’s important to note that one of the requirements for treaty protection under the estate tax treaty with the US is, is that the tax payer is not a UK national and generally, UK nationality now doesn’t matter for tax purposes but actually it does matter under the estate tax treaty where they become a UK national, they can be prevented from being able to get all the full benefits from it, so what we would say there is that people should take advice you know from tax advisors before acquiring UK nationality.
Hannah Dart
Of Counsel, Private Wealth and Tax
Much has been made of the UK’s new FIG regime. Broadly, that’s going to allow a person who hasn’t been a UK resident for ten years to move to the UK and pay no tax on their non-UK income and gains for the first four years of their arrival, but that won’t necessarily mean that a US person moving to the UK has no UK tax exposure at all will it?
Patrick Harney
Partner, Private Wealth and Tax
That’s absolutely right, the new FIG regime only applies to individuals. Crucially, it doesn’t apply to companies and trust so, if individuals are moving to the UK for the first time and they are either say the managers of US LLCs or the directors of companies that are abroad or they’re the trustees of trust, they could on Day 1 bring those structures entirely into the UK taxation net, so your point is well made, whereas there might be no tax for individuals on the foreign and income and gains in the first four years if they’re participating structures like trusts and companies they could bring those structures immediately into UK tax as soon as they get off the plane so to speak.
Hannah Dart
Of Counsel, Private Wealth and Tax
So it remains vital that US persons seek UK tax advice before moving to the UK even if they only plan to remain for up to four years, including a full review of all their structures. We might want to consider steps such as appointing non-UK resident manager, directors, trustees to ensure that those structures don’t become Uk resident. We’d also want to look at any structures to ensure there’s no possibility of double taxation as between the US and UK as there are situations where the double tax treaties don’t fully eliminate that possibility.
Patrick Harney
Partner, Private Wealth and Tax
Exactly. A fundamental priority of US/UK tax planning from UK side is really understanding common US kind of structuring techniques for individuals that come to the UK so that we can, you know, fully make these work also from a UK perspective.
More information on the new UK tax regime can be found on our non-dom hub on our website.