New rules designed to encourage overseas entrepreneurs to invest in the UK may well have had the opposite effect.
That’s the message from DY’s Tax Client Manager, Natalie Bate. She said the rules came into force in April this year after the Government had announced a huge overhaul to the tax system in the Autumn Budget.
“The changes were supposed to encourage entrepreneurs who live abroad to bring their wealth to the UK – but the actual effect is that there are fewer overseas millionaires coming into the UK, and more UK millionaires leaving the UK permanently.”
Natalie said when it came to worldwide taxes, there were two main concepts to consider – residency, which looks at where you spend your time each year, and domicile, which is where you’re considered overall to be from.
“Depending on the level of your ties to the UK, you could spend as little as 16 days in the UK and be considered a UK tax resident or as many as 182 days and not be a resident.
“As a UK resident who is also UK domiciled, your worldwide income and gains would be taxed in the UK, but as a UK resident who was not UK domiciled, you could previously opt to exclude your overseas income and gains from UK tax, which was very popular with wealthy overseas professionals wanting to work in the UK on a short-term basis.
“The new tax rules have now scrapped the concept of domicile, which means anyone who has been a non-UK resident for the previous ten tax years will now have a four-year period in which they can be a UK resident and exclude all overseas income from UK taxes.
“The logic was that those coming over on a short-term contract could bring their overseas income to the UK without fear of it being taxed – an ideal opportunity to create more international spending in the UK.
“But in fact, the ruling has led to UK millionaires leaving the country as the abolition of domicile has had a knock-on effect for inheritance tax (IHT).
“With the introduction of the new residency only regime, IHT is now assessed on residency only, meaning that if you spend ten full tax years as a non-resident of the UK immediately prior to death, then the UK has no right to tax your overseas assets.
“This essentially means if you’re a UK millionaire who likes to travel, it’s now easier than ever to avoid UK IHT. You just need to review your UK ties and keep your day count under the capped amount for ten years while slowly moving your assets overseas.
“We have seen a significant increase, especially among retired millionaires and those that can work remotely, of UK domiciles moving their funds into overseas investments and travelling the world.
“For those that wish to create a new home overseas rather than travel all over, the majority of other countries still use domicile so you can also benefit from tax advantages there as you can keep your UK domicile and be treated as non-domiciled in your new home.”