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Mishcon Academy: Digital Sessions – Tax Aware: What to think about when moving to the UK in 2020: from Immigration to Tax

Posted on 11 November 2020

Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.

This session was recorded on 29 October 2020. The information in the film was correct at the time of recording.

To review the key insights from the event, please view the film or read the write up below.

What are the main immigration categories under which you can apply for a Visa in the UK?

There are various types of UK visa and each client's requirements will be unique, but generally speaking there are the following types of visas in the UK:

  • Work based
    The most popular work based visa is Tier 2, which means an employer is able to sponsor someone to work in the UK. There is also the sole representative visa which allows an applicant to establish a business in the UK.
  • Investment
    For HNW clients, the most popular investment visa is the £2 million Tier 1 Investor visa. There is also now the option of a £50,000 Innovator visa for investment into innovative new businesses.
  • Family based
    Most spouses/partners & children under 18 can join the main qualifying visa holder (see above categories) in the UK. There is also a route if your spouse/partner or child is British.
  • European
    Free movement has allowed EEA nationals to live and work in the UK but this will change from 1 January next year.
To what extent is Brexit changing the process of applying for a UK Visa?
  • Up until 31 December this year Europeans can continue to apply for either a visa to continue living here (this is known as pre-settled status) or a visa to confirm that they have permanently lived here for at least 5 years (this is known as Settled status).
  • From 1 January 2021, provided that the transition period is not extended, Europeans will need to apply for the same visas as everyone else, i.e. work, investment or family based, with the introduction of a new points based system.
How has COVID-19 impacted UK immigration law?
  • The Home Office have shown flexibility allowing visitors to apply for visas from within the UK during most of the lockdown period.
  • The Home Office have also adopted a policy where absences from the UK due to COVID-19 should not impact applying for ILR or British citizenship.
  • They have also shown flexibility on the Entrepreneur visa with some of the visa extension and ILR requirements.
Will a person automatically become UK tax resident and domiciled when moving to the UK?

Not automatically. In the UK we distinguish between tax residence and domicile.

  • You will become UK tax resident if you satisfy one of the three tests in the "statutory residence test". That test generally turns on:
    • the number of “days spent in the UK” throughout a tax year, which in the UK runs from 6 April to 5 April; and
    • Your connections/ties to the UK, including work, home, accommodation, spouse, minor children and time spent in the UK in the last few tax years.
    • As a rule of thumb, you will be UK tax resident if you spend at least 183 days in the UK – although you may become UK tax resident sooner if you have any ties to the UK or if you have been UK tax resident before.
  • You will only become UK domiciled or "deemed domiciled" if you become UK tax resident and either:
    • intend to settle in the UK permanently or indefinitely; or
    • remain UK tax resident for at least 15 of the previous 20 tax years; or
    • were born in the UK to UK parents.
How will someone that has moved to the UK be taxed whilst they are in the UK?
  • UK tax exposure depends upon both the individual's tax residence and domicile.
  • Very broadly, your tax residence dictates your exposure to UK income tax and capital gains tax. Whereas your domicile affects your ability to claim the favourable remittance basis, and your exposure to inheritance tax.
Does obtaining UK citizenship change things for tax purposes?
  • Previously, no. And in legal principle, HMRC considers that nationality should not affect your UK tax residence, and should not be a determinative factor for your UK domicile. 
  • However, under recent changes to Home Office policy, there is concern that if you apply to naturalise as a British citizen, there is a significant risk that you will be regarded by HMRC as domiciled in the UK. HMRC appear to accept that nationality is not a deciding factor, but it appears they will most likely make enquiries where a non-dom naturalises in the UK. For that reason, we recommend such individuals draft a document known as a "domicile statement" that is tailored to state their specific non-dom circumstances.
How do you go about finding a property to rent or buy in the UK?
  • If you are already familiar with the area you wish to purchase in you could sign up directly with local estate agents.
  • However if you are time pressured and do not want to trawl through websites or agents' brochures, you could instruct a specialist buying agent to do the leg work for you.
  • If you wish to take out mortgage financing you should speak with a mortgage broker.
  • You should have also considered whether you will purchase the property in your own name, or in a company name.
What steps are involved when buying a property in the UK (exchange, completion, mortgage)?
  • Once you find a property you like a price will be negotiated, however there is no legally binding contract until you formally exchange contracts.
  • Prior to that point solicitors will be appointed, contracts drafted, due diligence on title and the property, searches, enquiries raised etc.
  • Once ready to proceed then contracts are exchanged, completion date set and a 10% non-refundable deposit is paid.
  • Between exchange and completion various documents are signed, mortgage certificates are submitted and the final balance for the property, tax, fees and disbursements collected in.
  • On the completion date set in the contract the balance of the purchase price is transferred and the keys are yours!
  • Following completion various formalities need to be completed including registering you as the owner at the land registry and advising any managing agents of the change of ownership.
What taxes are payable on acquisition of UK property (SDLT, and how this changes where the property has an annex, or is mixed use)?
  • Focusing on residential property, the main tax on acquisition is Stamp Duty Land Tax (SDLT). There are different rates due at different "slices" of the price.
    • The starting point is the residential standard rates. From April 2021, these will range from 0% for properties valued up to £125,000 up to 12% for properties valued at £1,500,000 and above.
    • There are also "Higher rates for additional dwellings" (HRAD), which are largely aimed at those buying second homes or have interests in other dwellings (even if these dwellings are abroad). This is an additional 3% on top of the standard rates.
    • Non UK residents must also be aware of the non-resident surcharge – which is an additional 2% from 1 April 2021 on top of the above. Therefore the timing of any purchase by a person coming to the UK will impact the SDLT due.
  • SDLT reliefs are available in certain circumstances. For example, there are some special SDLT rules relating to first time buyers, lease grants, replacement of main home, and certain collective enfranchisements, therefore claiming the appropriate reliefs is very important. You may wish to also think about the following:
    • If you are buying a non-residential or mixed-use property (i.e. a mix of commercial and residential property or derelict property with no works planned), the top level SDLT rate is only 5%.
    • If you are buying a property with the capacity for multiple dwellings, e.g. a house with a flat above the garage, you may be eligible for multiple dwellings relief, which entitles you to a reduced rate of SDLT on the mean price depending on number of dwellings.
Why is important to get tax advice before you arrive in the UK?
  • The key reason is control. If advice is taken before coming to the UK, clients still have control of the situation; they can adapt and/or refine plans according to the advice, or they can seek further assurances on any complex points of law.
What are the strategies used to resolve any dispute with HMRC (settlement, ADR – and approaching it from multiple angles, especially where there are dual tax effects)?
  • Unless a novel point of law arises, HMRC have encouraged the use of alternative dispute resolution (ADR) to resolve residence and domicile issues, and this can be helpful both from a privacy perspective, dealing with multiple tax issues at the same time and achieving a final agreement without multiple appeals before the courts and tribunals.

 

The Mishcon Academy Digital Sessions

Nicola Simmons

Welcome everyone.  I’m Nicola Simmons.  I’m an Associate in our Tax and Wealth Planning Team here at Mishcon de Reya and I’ll be your host for today’s tax webinar.  This is a Mishcon Academy Digital Session, which is a series of online events, videos and podcasts looking at the biggest issues faced by our businesses and individuals today.  Today, we are discussing what to think about when moving to the UK in 2020.  Specifically, we’re looking at immigration, tax and real estate.  I am joined by my colleagues Stephen Bostock, a Partner in Immigration; Kassim Meghjee, a Partner in our Tax and Wealth Planning Team; Sarah Conibeere, a Managing Associate in Residential Property; Jonathan Legg, a Partner in Real Estate Tax and Robert Hartley, Partner in Dispute Resolution.  Turning first to Stephen.  What are the main immigration categories under which you can apply for a visa in the UK?

Stephen Bostock

I mean it’s quite a wide question you know, there’s dozens and dozens of visa categories.  Broadly however we can probably group them into four main categories.  The first one being the work-based visa route.  The most popular sub-category within that would be what’s called tier 2 where a company in the UK looks to sponsor someone to work here for them.  There’s also the sole representative visa where if someone has a business overseas and they’re looking to open the first UK subsidiary then there’s a facility to join that business as it’s opening in the UK.  And the second main category I would say is the investment-based routes.  I think the most well-known and popular sub-category of this would be the tier 1 investor visa.  It takes at least five years to get indefinite leave to remain, another year on top of that to get British citizenship and there’s a need to live here for ideally six months every year as well.  But the main requirement is an investment of £2 million.  There’s also, there used to be what’s called a tier 1 entrepreneur visa that was incredibly popular.  That was abolished last year and was replaced with the innovator visa.  It’s a £50,000 investment into a business in the UK that is deemed, via a third-party endorser, as sufficiently innovative.  The third category is family-based visas.  So, this would be the spouses, partners, children under the age of 18 of applicants who’ve applied in one of the work-based categories or one of the investment-based categories.  There’s also a category that if you’re married to or be an unmarried partner of a British citizen then there’s a route to come here under that category as well.  Another one we see quite a bit of as well, is the ancestry route where if you are from the commonwealth and have a grandparent who was born in the UK and you can evidence it, there’s a route to come here for five years on a work-based visa.  The last category is the European route which is obviously of all the categories, in the biggest state of flux at the moment and just to clarify, at the moment free movement does still apply.  We are in the transitional period until the end of this year so, we’re at the moment still seeing a huge amount of interest in applying for visas for European nationals and their family members. 

Nicola Simmons

Thanks Stephen.  You’ve obviously already touched upon it but to what extent is Brexit changing the actual process of applying for a UK visa?

Stephen Bostock

Brexit is going to have a huge impact on applying for a UK visa going forward.  Specifically for European nationals.  At the moment they have the ability to apply for what is called a pre-settled status or settled status.  Pre-settled basically means you would be issued with a five year visa if you’re a European national and you can show that you’re currently lawfully in the UK but that you haven’t been here for five years.  If you have been here for five years then you can skip that and go straight to settled status which is the equivalent of indefinite leave to remain.  So, you would need to show that you’ve been living here for five years and you should be granted settled status.  Our advice is to try and get this status as soon as possible because from the 1st of January everything changes.  And essentially the UK Government are bringing in a brand new points-based system.  The game changing part of it is that it will apply to everyone equally across the globe so, there will no longer be preferential treatment for European nationals. 

Nicola Simmons

So, moving on to the tax side now.  Kassim, will a person automatically become UK tax resident and UK domiciled when they move to the UK?

Kassim Meghjee

No not immediately and not necessarily I think is the answer.  The UK makes a distinction between tax residency and domicile.  As far as tax residency is concerned we have the statutory residence test and the way it works is you start from determining whether someone is automatically non-resident and if someone is not present in the UK for more than 16 days they are automatically non-resident and then if an individual has not been tax resident for the last three years, they have 45 days before they become tax resident.  The second test is automatic residence.  So, if an individual is in the UK for more than 183 days or he or she is employed full-time here, they will automatically be tax resident, irrespective of the number of days.  And it’s the individuals who fall within -  between those two is where we look at the sufficient ties test and the number of connecting factors that an individual has in the UK will determine how many days they will need to be in the UK to become tax resident and the connecting factors or the sufficient ties are if the individual has a spouse or cohabiting partner or a minor child in the UK who are tax resident that becomes one connecting factor.  The second connecting factor is a work tie.  If an individual works for three hours or more in a day that counts as one day and if they have got 40 days in the UK then that will be a second connecting factor.  The third connecting factor is 91 days and you look back at the last two tax years to see if they have been present in the UK for 91 days or more the fourth connecting factor as it were and the fifth one is the country tie and that is only relevant for individuals who have been tax resident in one of the last three tax years.  The more ties you have, the less number of days you need to be tax resident in the UK and as far as domiciled is concerned, if you look at the common concept, normal law concept, starting with domicile of origin and an individual’s domicile of origin is the domicile of their father at the time of their birth and then there is domicile of dependents where up to the age of 16 if the parents, primarily the father’s domicile changes, the child’s domicile changes at the same time.  And then the third one is domicile of choice.  This is where a firm intention is made by an individual to move to the UK and the final one, which is the most important one for us is the deemed domicile, where if an individual has been in the UK for 15 years out of the last 20, they will be regarded as being deemed domicile. 

Nicola Simmons

So practically, in terms of actual tax liability, will someone that’s moved to the UK, how will they be taxed whilst they’re here?

Kassim Meghjee

The UK has a very favourable regime whereby if an individual is a resident non-domiciled, they only have to pay tax on the remitting spaces.  Which is basically their income or gains have been remitted to the UK.  There is one other key distinction which is inheritance tax.  If an individual is not domiciled in the UK, they are not taxed on any assets they have outside the UK. 

Nicola Simmons

Great thank you very much Kassim.  So, moving on to the practicalities of physically moving to the UK.  Sarah, how do you go about finding a property to rent or buy in the UK?

Sarah Conibeere

Yeah so, it’s sort of different from if you were already living in the country you’d know a lot more about the areas where you’d wish to buy.  You or I might just sign up to Rightmove and have a bit of a browse but for clients trying to move to the UK for the first time, that can be quite daunting and also a lot of our clients don’t have the time or necessarily the knowledge about local areas, about where they want to buy.  If they do know an area where they’d like to buy specifically they could sign up with local estate agents in that area but what a lot of our clients actually do is they sign up with a buying agent who has a lot of specialist knowledge and they would tell them what kind of  things they are looking for in a property and then a buying agent would do all the legwork and put together a portfolio of properties that would match their requirements. 

Nicola Simmons

Once you’ve actually identified the property that you want to live in in the UK, what steps are involved to actually buying?

Sarah Conibeere

In the UK, what happens is you negotiate with the other party and the estate agent will normally be involved in those negotiations.  And then once you agree a price for the property, that’s when you actually instruct the lawyers to get involved and to carry out the due diligence.  The estate agent will then put the solicitors in touch that are acting for the seller and buyer and at that point the solicitors will start drafting the contractual paperwork, negotiate the terms of the contract and also carry out due diligence on the property itself.  Once we’re happy from a legal point of view and the buyer’s happy and wants to go ahead that’s when we’d actually exchange contracts which is when it becomes a legally binding commitment to buy the property.  And at that point that’s when you pay a 10% deposit.  So, 10% of the purchase price over and you would set an actual completion date.  In between exchange and completion you would then deal with things like drawing down your mortgage monies, signing various pieces of paperwork and then on the actual day of completion that’s when you pay the balance, the 90% of the purchase price, you pay your tax and you’d pay your solicitors fees and disbursements and things like that.  And that’s the day you’d actually then get the keys and be able to move in.  Following completion then there’s a lot of paperwork to do.  Quite a lot going on in the background. 

Nicola Simmons

So, turning now to Jonathan, what taxes are payable when you do acquire a UK property?

Jonathan Legg

Well, I’m going to talk actually about one tax I think in this seminar, which is stamp duty.  So, I think if you’re moving to the UK and you’re buying a home then that is the main tax you’re going to face on acquisition.  And it’s a tax you’ve got to pay within 14 days of completion.  You pay the stamp duty based at different rates depending on the slice of the price.  You can see there are various different permutations for SDLT depending on the identify of the purchaser and whether or not they are UK resident.  These rates are the ones that are in force from 1st April 2021 and that’s when it does all get a bit complicated because you’ll see we have the standard rates which is that set of rates at the top and it gets much more complicated after next April because you’re going to then have to pay another 2% on each of those slices if you’re considered to be non-resident and we also have what are called the higher rates for additional dwellings which apply currently and those are broadly designed to catch people buying second homes.  People who already have interests in other dwellings.  So, if you’re moving to the UK and you’re retaining your home abroad or you’ve got an interest in a holiday home somewhere in the world, you’re generally going to get hit by the higher rates as well.  As always, there is detail to all this.  The main exception to the additional rates is the replacement of main homes relief.  So, if actually you are selling your main home at the same time you’re buying this new one, or you actually sell your main home within three years of buying the new one, you either can avoid the higher rates or may be able to claim them back. 

Nicola Simmons

That’s really helpful.  Thank you for your summary.  That moves us swiftly on to Robert Hartley.  So, looking at the bigger picture, why is it important to get tax advice before you arrive in the UK?

Robert Hartley

Well, I think the key sort of issue in terms of this whole situation of coming to the UK is what you have control over.  And once you’ve arrived in the UK everything is sort of crystalised at that point.  Whatever you have bought, wherever you have been, whatever website you have signed up to for property searches or job searches or things like that.  All these things are recorded at this point and the revenue have an ungodly number of ways to go and find information about people.  So, all I would say to people is if you take advice at that point and you take frank advice on an all-facts basis it’s much more difficult to go wrong in those circumstances than if you decide you’re just going to wing it, get to the UK and then try and establish what your status is likely to be at that point.  And I get very much that you know, people don’t want to sort of take too much in terms of costs in terms of the planning of the situation as such but all I can tell you from painful experience on the dispute side, is whatever the costs of advice they are magnified by a factor of 10 at least if you wind up with someone from the High Net-worth Individual Unit at HMRC who decides that someone is of particular interest to them.  What you don’t want to be is in a situation of constantly playing catch up to whatever the Revenue are looking at.  You want to be in a situation where you or clients if that’s the case, kind of say, ‘This is what I plan to do.  This is what I plan to buy.  This is when I plan to buy it.  This is where I plan to go.  This is where my family is.  This is how many days my family will come to the UK.  What evidence do I need in terms of my days in the UK? Do I need my boarding passes? Do I need sort of hotel receipts? Do I need petrol station receipts? And things like that’.  The more that discussion takes place even around the littlest things, the more straightforward someone’s position is likely to be once they have gone to the UK.  Because the number of issues that crop up because people haven’t sweated the advice at a preliminary stage is quite frightening and of course you have no control over what the Revenue does once you are here and once you have done things.  But at the point you take the advice, you the client or you know, the intermediary and the client have control of the situation and they can work through what is the best plan without prejudice at that point.  So again, control is you know, the real benefit to taking the advice and all I would say is, whatever you are thinking in terms of advice, take double the amount of advice that you have in mind.  Triple it because it will simply not ever be a wasted cost. 

Nicola Simmons

Understood.  Thank you very much.  I’m just looking at the questions.  We’ve got one for Kassim.  So, does obtaining UK citizenship change things for UK tax purposes?

Kassim Meghjee

I think up to September last year the position was relatively clear and you could get citizenship without having any tax, negative tax impact.  What the Home Office has done is they have added this principal home requirement when applying for citizenship.  If you say that your principal home is in the UK, that is one of the tests for determining domicile of choice.  So, an individual’s domicile then changes to the UK.  If that happens you can’t get remitting space taxation and you are taxed on a rising basis which means world-wide taxation.  What is key is the information that is supplied to HMRC has to be drafted and dealt with in such a way that you don’t close off the options of having another residence elsewhere and that in the long-term you are, you will be moving elsewhere and therefore giving yourself the ability to argue that even by obtaining citizenship in the UK you are not domiciled in the UK.  This is one of those changes where you need certainly clients and intermediaries need to take advice from the tax advisors at the time when they are dealing with HMRC because that is where the information will come from when the Home Office are looking at the application and once the citizenship is obtained the Tax Authorities will use the evidence of citizenship as being determinative of domicile of choice. 

Nicola Simmons

Great.  I think that’s everything we’ve got time for so we’ll wrap up.  Thank you very much to you, the audience, for joining us today and to our speakers for their insight and practical advice.  Hopefully, you found that useful.  Thank you very much.  Bye for now. 

The Mishcon Academy Digital Sessions

To access advice for businesses that is regularly updated, please visit mishcon.com.

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