Individuals moving to the UK can significantly reduce their liability to UK tax by making the most of legitimate tax planning strategies.
Tax savings can usually be made for individuals who are:
Temporary UK assignments
- assigned to the UK by an overseas employer for a period of up to two years; or
- non domiciled and will have business travel outside of the UK.
HMRC will allow relief from income tax for travel and subsistence payments if they are incurred in the performance of employment duties. This relief is commonly referred to as ‘detached duty’ or ‘temporary workplace’ relief.
To qualify, an individual must be working away from their normal location for a maximum period of 24 months. This would typically apply to employees who are ‘seconded’ to the UK for a fixed-term assignment, but not to individuals who move to the country to take up a new UK employment (there needs to be an existing relationship with a home country employer). Individuals who qualify for the relief can claim certain expenses:
- the cost of travelling from home (or anywhere else) to the temporary workplace;
- the reasonable cost of accommodation near the temporary workplace (including utilities);
- daily subsistence costs.
These expenses relate to the employee and not their family. The rules are complex and correct documentation of payment needs to be retained in order to substantiate any claims. But applying the rules correctly can generate a significant tax planning benefit.Non-domiciled with business travel outside UK
An individual who is non-domiciled and moves to the UK can claim UK tax exemption on the proportion of their income relating to days spent working outside the UK. This applies to the year of transfer and the next two tax years.
A condition of claiming this relief is that at least the amount being claimed as a deduction must have been paid and retained outside the UK. If any amount of this claim is remitted to the UK, the tax relief available will be reduced accordingly.
Non-doms wanting to take advantage of this tax relief should ensure their net pay is delivered to a qualifying non-UK bank account. If you are being paid by a UK employer, this can be achieved by using an offshore account with one of the major banks based in the Channel Islands or Isle of Man. Such branches remain part of the UK banking system, but the jurisdictions are considered to be outside of the UK for tax purposes. The account should be in the sole name of the employee, although a joint account is acceptable if the spouse does not receive income directly to that account.Home visits for non-domiciles
Where a non-domiciled employee is posted to the UK, whether temporarily or on an indefinite basis, there is scope for tax relief on return flights to their home country from the UK. This can still apply even where they perform no duties outside of the UK.
For the employee themselves, they can claim for flights home for a period of up to five years from the date they first arrive in the UK and there is no limit on the number of flights. Additionally, they can claim relief for two return trips in a year for their spouse and children.Social security contributions
In addition to the tax position, the social security position of the employee is also key. Where coming to the UK from within the EEA it is often possible to retain coverage in their home country and not pay UK National Insurance Contributions (NIC) if on temporary assignment or where they will work regularly in more than one EEA Member State.
There are Reciprocal Agreements with countries such as the USA and Japan which also allow continued coverage but in more prescriptive circumstances. Where the employee is assigned from a non-agreement country then UK NIC will likely be due , but may in some circumstances not be payable for their first 52 weeks in the UK.Seek advice early
Taxpayers wanting to take full advantage of these opportunities need to make sure their affairs are structured correctly at the time of moving. So it is important to take professional advice early so that tax savings can be maximised. For further information, please contact us.
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