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Individual taxation

Residence and domicile

How is residence/domicile determined for tax liability purposes in your jurisdiction?

Liability to UK tax depends on an individual’s residence and domicile.

Residence For tax years 2013-2014 onwards, UK tax residence is determined by a statutory residence test (Schedule 45 of the Finance Act 2013).

Individuals are automatically non-UK resident if they:

  • were UK resident in one or more of the previous three tax years and spend fewer than 16 days in the United Kingdom in the tax year;
  • were not UK resident in any of the previous three tax years and spend fewer than 46 days in the United Kingdom in the tax year;
  • work full time abroad with no significant breaks and spend fewer than 91 days, and fewer than 31 working days, in the United Kingdom in the tax year; or
  • were not resident for either of the two previous tax years and die having spent fewer than 46 days in the United Kingdom.

Individuals are automatically UK resident if they:

  • spend 183 or more days in the United Kingdom in the tax year;
  • have a home in the United Kingdom in which they spend at least 30 days in the tax year and there is a 91 consecutive-day period in which they have that home and:
    • have no home abroad; or
    • have a home abroad but spend fewer than 30 days in that home;
  • work full time in the United Kingdom with no significant breaks for at least 12 months and more than 75% of their working days in the year are worked in the United Kingdom; or
  • die and have been automatically UK resident for the previous three tax years, provided that at the time of death they had:
    • a home in the United Kingdom; or
    • homes in the United Kingdom and abroad, but had not spent more than 30 days in the home abroad in the tax year.

If none of these tests apply, whether individuals are UK resident depends on the number of UK ties that they have and the number of days that they are in the United Kingdom (see table below). A ‘day’ is counted where the individual is in the United Kingdom at midnight.

The relevant UK ‘ties’ are:

  • family – the individual’s spouse, civil partner or minor children are resident in the United Kingdom;
  • accommodation – the individual has accommodation available to him or her in the United Kingdom for at least 91 days during the tax year;
  • work – the individual works in the United Kingdom for more than three hours on at least 40 days in the tax year;
  • UK presence in previous years – the individual spent more than 90 days in the United Kingdom in either of the two previous tax years; and
  • days in the United Kingdom – the individual spends more midnights in the United Kingdom than in any other country.

A ‘leaver’ is someone who was resident in the United Kingdom in at least one of the previous three tax years; otherwise an individual is an ‘arriver’.

 

Days in the United Kingdom (in the tax year)

Arrivers

Leavers

0 to 15

Not resident

Not resident

16 to 45

Not resident

Resident if four ties are present

46 to 90

Resident if four ties are present

Resident if three ties are present

91 to 120

Resident if three ties are present

Resident if two ties are present

121 to 182

Resident if two ties are present

Resident if one tie is present

183 or more

Resident

Resident

Individuals are generally treated as resident or not resident for a whole tax year. However, in limited circumstances they can be treated as resident for only part of a tax year.

Domicile An individual’s domicile is the jurisdiction which he or she considers to be his or her permanent home and where he or she intends to live indefinitely. This may not be the country in which he or she is resident.

Individuals are born with a domicile of origin, which is usually the domicile of their father on the date of their birth (if their parents were married). Individuals can acquire a domicile of choice in another country by being resident there with the intention of remaining there permanently. If an individual ceases to be resident and to intend to reside permanently in that country, the domicile of choice is lost. The individual will then either acquire a new domicile of choice or revert to his or her domicile of origin.

Individuals who are non-UK domiciled under general law can become deemed domiciled in the United Kingdom for tax purposes. This occurs when the individual has been UK resident for at least 15 of the previous 20 tax years. Individuals who are UK deemed domiciled are subject to tax on their worldwide income and gains, and their worldwide estate falls within the scope of inheritance tax. A UK deemed domicile can be lost if the individual is non-UK resident for at least six complete tax years.

Income

Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

UK residents are subject to income tax on their worldwide income.

UK residents who are non-UK domiciled and not UK deemed domiciled can claim to be taxed on the remittance basis. If the claim is valid, they pay income tax on foreign-source income only if it is brought to or received or used in the United Kingdom. They may have to pay an annual charge to access the remittance basis depending on how many years they have been UK resident. If no claim is made, they will be subject to income tax on their worldwide income.

Non-UK residents are taxable on UK source income only (eg, UK bank interest and UK company dividends). This is often limited to any tax deducted at source. Deductions are made at the basic rate of 20%. This limited liability does not apply to rental income from UK real estate.

Individuals have an annual tax free personal allowance of £11,500. However, individuals who claim the remittance basis lose their personal allowance. The personal allowance is progressively withdrawn for those with taxable income over £100,000.

Income above the personal allowance is taxed at the following rates:

Amount of income

Dividends from UK and non-UK companies

All other income

£0 to £33,500

7.5%

20% (basic rate)

£33,501 to £150,000

32.5%

40% (higher rate)

Over £150,000

38.1%

45% (additional rate)

All taxpayers have a £5,000 annual tax-free allowance for dividends; however, this will be reduced to £2,000 from April 2018.

Employment income is usually taxed through the Pay As You Earn scheme and is paid to the employee net of income tax and national insurance contributions.

Individuals who have their main residence in Scotland, or who are most closely associated with Scotland, will pay Scottish income tax (at different rates) on most of their taxable income (other than dividend income and savings income). Different rates may also apply to non-UK residents with Scottish income.

UK income tax is levied on the basis of the UK tax year, which runs from April 6 to April 5. Income tax is generally reported as part of Her Majesty’s Revenue and Customs’ self-assessment process. Online tax returns must be submitted by January 31 after the end of the tax year to which they relate. The deadline for paper returns is October 31 after the end of the tax year to which they relate. Tax which is not deducted at source is due by January 31 after the end of the tax year to which it relates. Tax due for the next tax year must be paid on account by January 31 and July 31.

Capital gains

Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

UK residents are subject to capital gains tax on any chargeable gain (broadly, the increase in value during their period of ownership) arising from the disposal of any asset worldwide. Certain assets are exempt from capital gains tax.

UK residents who are non-UK domiciled and not UK deemed domiciled can claim to be taxed on the remittance basis. If the claim is valid, they pay capital gains tax on chargeable gains arising from the disposal of assets situated outside the United Kingdom only if the sale proceeds are brought to, received or used in the United Kingdom. They may have to pay an annual charge to access the remittance basis depending on the number of years that they have been resident in the United Kingdom. If no claim is made, they will be subject to capital gains tax on their worldwide gains.

Non-UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of UK residential property and any asset which is used for the purposes of a trade carried on in the United Kingdom.

Individuals have an annual allowance of £11,300 (to be increased to £11,700 for the 2018-2019 tax year), after which any gain is taxed at a rate of 10% or 20% depending on whether the individual is a basic or higher rate taxpayer. Capital gains arising from residential property are taxed at higher rates of 18% and 28%.

Chargeable gains are reported by individuals on their self-assessment tax return. The deadlines for submitting tax returns are the same as those for income tax returns.

Non-UK residents who dispose of UK residential property must file a non-resident capital gains tax return within 30 days of the disposal. Any capital gains tax due must also be paid within 30 days unless the individual is subject to the self-assessment regime.

Relief from capital gains tax (resulting in a full or partial exemption) is available in relation to the disposal of residential property where it was, or has been during the period of ownership, the individual’s only or main residence.

Transfers of assets between spouses or civil partners do not give rise to a charge to capital gains tax.

Relief may be available in relation to gains realised on:

  • the disposal of assets used in trade or business; or
  • the disposal of an interest in a trading business or shares in a trading company.

Inheritance and lifetime gifts

Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

UK domiciled or deemed domiciled individuals are subject to inheritance tax on their worldwide assets. Individuals who are non-UK domiciled and not UK deemed domiciled are subject to inheritance tax on their assets situated in the United Kingdom only.

Inheritance tax is charged on:

  • the value of an individual’s estate on death;
  • gifts made to individuals within seven years of death;
  • lifetime gifts to most trusts and close companies (broadly, companies controlled by up to five persons); and
  • certain assets held in trusts.

On death, an individual’s net chargeable estate is taxed at 40% above the available nil-rate band. The nil-rate band is £325,000; however, part of it may have been used up by lifetime transfers made within the seven years before death. An additional residence nil-rate band of up to £100,000 is also available in some circumstances. An ‘estate’ comprises all assets to which the individual is beneficially entitled, including jointly owned assets.

Lifetime gifts to individuals are not subject to inheritance tax unless the donor dies within seven years of the gift.

Lifetime transfers to close companies and most trusts are immediately taxable at 20% (subject to the availability of the nil-rate band). Additional inheritance tax is payable if the transferor dies within seven years of the transfer.

Gifts made to a spouse or civil partner during an individual’s lifetime or on death are generally exempt from inheritance tax, unless the donor spouse is UK domiciled and the recipient spouse is non-UK domiciled – in which case the exemption is limited to the amount of the nil-rate band.

Relief from inheritance tax is available for some business property and agricultural property, subject to certain conditions. These reliefs reduce the value of the relevant property by 100% or 50% for inheritance tax purposes.

Gifts to UK charities (and charities in certain other countries) are exempt from inheritance tax, whether made during an individual’s lifetime or upon death.

There is no separate UK gift tax.

Real estate

What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?

Individuals acquiring real estate in England, Wales (for acquisitions before April 1 2018) or Northern Ireland must pay stamp duty land tax (SDLT).

Individuals acquiring real estate in Scotland must pay land and buildings transaction tax (LBTT).

Individuals acquiring real estate in Wales (for acquisitions on or after April 1 2018) must pay land transaction tax (LTT).

In each case, the relevant tax is payable on the consideration given by the purchaser for acquiring the property. This includes any money or money’s worth given by the purchaser or the satisfaction, release or assumption of any debt owed by the seller.

The amount of tax payable is based on the so-called ‘slice’ system, whereby the proportion of the consideration in each band is taxed at the corresponding rate.

Different rates apply for the acquisition of residential property and non-residential property. ‘Residential’ property is a building that is used, suitable for use or in the process of being constructed or adapted for use as a dwelling. ‘Non-residential’ property is any other property.

SDLT rates (as at January 1 2018) Residential

Consideration

SDLT rate

Up to £125,000

0%

£125,001 to £250,000

2%

£250,001 to £925,000

5%

£925,001 to £1.5 million

10%

Over £1.5 million

12%

Non-residential or mixed use

Consideration

SDLT rate

Up to £150,000

0%

£150,001 to £250,000

2%

Over £250,000

5%

LBTT rates (as at January 1 2018) Residential

Consideration

LBTT rate

Up to £145,000

0%

£145,001 to £250,000

2%

£250,001 to £325,000

5%

£325,001 to £750,000

10%

Over £750,000

12%

Non-residential or mixed use

Consideration

SDLT rate

Up to £150,000

0%

£150,001 to £350,000

3%

£350,001 to £750,000

4.5%

Over £750,000

5%

LTT rates (as at January 1 2018, for transactions on or after April 1 2018) Residential

Consideration

LBTT rate

Up to £150,000

0%

£150,001 to £250,000

2.5%

£250,001 to £400,000

5%

£400,001 to £750,000

7.5%

£750,001 to £1.5 million

10%

Over £1.5 million

12%

Non-residential or mixed use

Consideration

SDLT rate

Up to £150,000

0%

£150,001 to £250,000

1%

£250,001 to £1 million

5%

Over £1 million

6%

Where the individual owns another residential property (anywhere in the world), an additional 3% applies to the residential rates.

In relation to leasehold property, SDLT, LBTT and LTT are also payable on rent consideration, to which different rates apply.

Value added tax (VAT) may also be payable in relation to the acquisition of non-residential property. At present, the rate of VAT is 20%. Where VAT is payable, there is an additional liability to SDLT, LBTT or LTT (as applicable), as the consideration is the amount including any VAT.

Disposal of real estate UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of real estate.

Individuals have an annual allowance of £11,300 (to be increased to £11,700 for the 2018-2019 tax year), after which any gain in relation to residential property is charged at a rate of 18% or 28% (depending on whether the individual is a basic or higher rate taxpayer) and in relation to non-residential property is charged at a rate of 10% or 20% (depending on whether the individual is a basic or higher rate taxpayer).

Non-UK resident individuals are subject to capital gains tax on any chargeable gain arising from the disposal of residential property (at 18% or 28%) and real estate used for the purposes of trade carried on in the United Kingdom.

Relief from capital gains tax (resulting in a full or partial exemption) is available in relation to the disposal of residential property where it was, or has been during the period of ownership, the individual’s only or main residence.

Where an individual holds real estate as part of a trading activity, the profits will be subject to income tax.

Non-real estate assets

Do any taxes apply to the acquisition and disposal of other assets apart from real estate?

Stamp duty applies on an instrument transferring:

  • stock (eg, shares or debentures) or marketable securities (ie, any security which is capable of being sold on the UK stock market); or
  • an interest in a partnership which holds stock or marketable securities.

Stamp duty reserve tax (SDRT) is payable on any agreement to transfer chargeable securities (eg, UK shares, non-exempt UK loan capital and units in unit trust schemes).

The rate of tax for stamp duty and SDRT is 0.5% of the consideration that is given. Where both stamp duty and SDRT apply, the SDRT charge is cancelled provided that the relevant instrument has been duly stamped for stamp-duty purposes.

VAT applies on the supply of goods and services in the United Kingdom. This is charged at the standard rate of 20%, the reduced rate of 5% or zero rate. Certain items are exempt, despite satisfying the VAT requirements.

Disposal of assets other than real estate UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of most assets, although certain assets are exempt.

Non-UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of an asset which is used for the purposes of trade carried on in the United Kingdom.

Where an individual holds an asset as part of a trading activity, the profits will be subject to income tax.

Other applicable tax regimes

Are any other direct or indirect tax regimes relevant to individuals?

No other regimes are relevant.

Planning considerations

Are there any special tax planning considerations for individuals with a link to your jurisdiction?

UK residents who are not UK domiciled can elect – on a tax-yearly basis – to be subject to income tax and capital gains tax on the remittance basis.

Where the claim is valid, the individual will be subject to income tax on foreign-source income and capital gains tax on chargeable gains arising from the disposal of foreign assets, to the extent that they are ‘remitted’ to the United Kingdom (ie, the income or gains, or anything derived from such income or gains, are brought to or received or used in the United Kingdom).

The remittance basis must be claimed by individuals in their self-assessment tax return for the relevant tax year.

Individuals who have been resident in the United Kingdom for seven of the previous nine tax years must pay an annual remittance basis charge of £30,000 for each tax year in which they wish to claim the remittance basis. This increases to £60,000 after the individual has been resident for 12 of the previous 14 tax years.

The remittance basis is not available to individuals:

  • with a UK domicile;
  • who were born in the United Kingdom with a UK domicile of origin; or
  • who have been resident in the United Kingdom for at least 15 of the previous 20 tax years.

Non-UK domiciled individuals are subject to inheritance tax in relation to their UK-situated assets only. Non-UK domiciled individuals who have been resident in the United Kingdom for at least 15 of the previous 20 tax years will be UK deemed domiciled, at which point their worldwide assets will be within the scope of inheritance tax. Non-UK domiciled individuals are advised to plan ahead and take steps (eg, transferring assets into a trust) to allow for non-UK assets to remain outside the scope of inheritance tax after they become UK deemed domiciled.

Non-UK domiciled individuals typically hold substantive UK assets through foreign entities, as the assets held by the individual (shareholding in the foreign entity) would fall outside the scope of inheritance tax. Until recently, this was a common structure for holding UK residential property. However, as of April 6 2017 any interest in a foreign entity or partnership which holds UK residential property is within the scope of inheritance tax.

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