Immigration and tax – a balancing act
Planning that works for UK taxes often doesn’t work well for UK immigration, and good advice on both is needed from the outset to avoid potential traps.
The example of ‘Pierre’, 45, from Switzerland, shows how tax and immigration pressures can conflict. Pierre has sold his business and now intends to move to London, but he is concerned about the tax consequences of becoming UK tax resident. He has heard that he can avoid this by spending less than a certain number of days in the UK. However, this will not work for the tier 1 investment visa he needs – he has to be UK tax resident to qualify for that.
Being non-UK domiciled, Pierre can use the ‘remittance basis’ of taxation. This means that he will be taxed in the UK on his UK source income and gains, but not on foreign income and gains unless he brings (remits) them to the UK. The proceeds of sale of his business can be remitted without tax. Can he live on that?
The answer is yes, but to qualify for the tier 1 investment visa he needs to bring at least £2 million into the UK, which must be invested in appropriate UK businesses. These investments will produce UK source income – probably around £80,000 a year – on which Pierre will need to pay UK income tax.
Pierre moves to the UK and looks forward to being granted indefinite leave to remain in the UK after five years. However, by that time the problem will be looming that, once he has been resident for seven tax years, he will have to pay the ‘remittance basis charge’ (initially £30,000 per year) to be able to use the remittance basis. Pierre suggests he spends less time in the UK, to avoid this.
This would, however, cause a problem with his visa. If he leaves before five years in the UK, the five year period required for indefinite leave to remain will start from scratch on his return. If he leaves after five years, he is permitted only two years outside the UK before losing his right to remain. Two years will not be long enough to avoid the remittance basis charge.
Pierre decides to stay in the UK and acquires indefinite leave to remain. After six years he applies for citizenship. He can break his UK residence after that, he thinks, just in time to avoid the seven year deadline for the remittance basis charge. But, to apply for a British passport, he has to declare that he intends to make his main home in the UK, which would hardly fit with leaving it so soon afterwards. So Pierre stays, taking advice on how to maximise his tax position despite the remittance basis charge.
Six years later, Pierre faces the approaching problem that, once he has been tax resident for 15 of the previous 20 tax years, he will become deemed domiciled for all tax purposes: inheritance tax, capital gains tax and income tax will all be payable with no concessions allowed for the fact that he is not actually UK domiciled. A business associate has offered him a consultancy role in Switzerland – could he prevent, or at least delay, becoming deemed domicile by avoiding UK tax residence for certain years?
Finally, the answer is yes for both his tax and his visa. Pierre had to declare that he intended his main home to be in the UK, but this was six years ago. He also has the job offer – a good reason to leave. Implemented correctly, this plan can enable him to avoid or delay deemed domicile.
Of course matters are, in reality, more complex. Pierre might acquire an actual domicile of choice in the UK (by virtue of moving here and intending to remain here). Individuals like Pierre also need to seek cross-border advice, taking into account the taxes of their home jurisdiction and any relevant double tax arrangements. Advice on all this, together with immigration advice, needs to be taken in good time – at least in the tax year prior to moving, but ideally earlier to allow sufficient time for implementation.