The UK income tax year end of 5 April 2019 is fast approaching. This note covers some practical points that international individuals and their advisers should consider before the end of the UK tax year and also a recap of questions to ask as part of their general UK tax planning.
Will you become deemed domicile for UK tax purposes in the near future?
The UK introduced deemed domiciled rules from 6 April 2017 for individuals who have been tax resident for UK tax purposes in the UK for 15 out of the previous 20 tax years. These years of tax residence do not need to be 15 consecutive tax years so periods of intermittent UK residency can also breach the 15-year threshold.
Planning should be considered in the years before becoming deemed UK domicile. For clients who will become deemed UK domicile from 6 April 2019 immediate planning should be considered.
Non-UK assets1 settled before becoming deemed domiciled will be excluded from UK inheritance tax. The new trust protection rules will also apply. For settlors who have not yet become deemed UK domicle, these trust protection rules will shelter non-UK income and gains in the trust from taxation in the hands of the settlor, unless the settlor receives a benefit and remits this to the UK. Once the settlor becomes deemed UK domicile, these protections will continue unless the trust is ‘tainted’. However, the settlor will be taxed on receipt of a benefit whether or not it’s remitted to the UK.
You may consider a period of absence from the UK for a number of years. The exact period will depend on a number of factors, such as how long you have been UK resident and your residency over the past few tax years.
Have you accidentally become UK tax resident?
Care needs to be taken when spending time in the UK so as not to breach the UK Statutory Residency Test rules.
If you regularly travel to the UK and have ties to the UK (accommodation, family, recent tax years where you’ve spent 90 days or more in the UK) you should seek advice on your UK tax residency position and whether to delay any further travel to the UK until after 5 April 2019.
Will you be moving to the UK in the next tax year (2019/20)?
If so, you may want to consider selling assets in this tax year (2018/19) and moving income receipts into this tax year (2018/19), where possible, depending on the tax position in your current jurisdiction.
Have you used your inheritance tax annual allowance?
An individual can gift up to £3,000 per year to anyone, without exposure to UK inheritance tax. If the previous year’s allowance has not been used, this allowance increases up to £6,000. There are various other simple reliefs from UK inheritance tax that can be used at any time, alongside more sophisticated planning.
Have you overpaid tax in previous years?
Any claim to reduce overpaid tax must usually be made within 4 years of the tax year to which the overpayment relates. Overpayments in the 2014/15 tax year must be reclaimed by 5 April 2019.
Property related general planning
Do you own UK residential property?
The tax rules for holding UK residential property have changed significantly over the past decade. It’s important to make sure that any such properties you hold have been recently reviewed for tax efficiency.
Is this property held directly by an individual?
If so, you should consider:
- The tax on any rental income – would company ownership be more tax efficient?
- The tax on sale or gift of the property – Non-Residents Capital Gains Tax and the 30-day payment window.
- UK Inheritance Tax - UK residential property is subject to UK inheritance tax irrespective of the owner’s domicile.
Is this property held by a non-UK company?
If so, you should consider:
- UK corporation tax, which will be introduced for non-resident landlords (from April 2020 for property income and April 2019 for
gains on disposal of UK property).
- The introduction of Capital Gains Tax for disposal of a property rich company.
- Annual Tax on Enveloped Dwellings (ATED) charge, where the property is valued at more than £500,000, or whether there is
relief from the charge.
- UK Inheritance Tax - UK residential property held by a non-UK company is subject to UK inheritance tax irrespective of the
Do you own UK commercial property?
The tax rules for UK commercial property have largely remained unchanged. However, from April 2019 the tax rules change in two key ways:
- Gains made on any increase in value after April 2019 on the disposal of UK commercial property, or a property rich company, will be subject to UK tax (original cost may also be used to calculate the gain).
- Where this gain has been made by a non-UK company, this will be subject to UK corporation tax from April 2019.
From April 2020, a non-UK company receiving rental income from UK property (residential and commercial) will be subject to UK corporation tax.
UK commercial property held directly by an individual is subject to UK inheritance tax irrespective of the owner’s domicile. However, UK commercial property held via a non-UK company will not be caught by UK inheritance tax for non UK domicile and non-deemed UK domicile owners.
It will be important to review any current UK commercial property structures to make sure you’re ready for these changes.
1 Other than non-UK assets holding UK residential property directly or indirectly, and other than some non-UK assets involved in the financing of the UK residential property.
If you would like to discuss any of these planning points in advance of 5 April 2019, or to discuss your UK tax position more generally, please get in touch with your usual SMP contact or with one of our advisers listed below.
SMP provide specialist UK taxation and structuring services for international High Net Worth Individuals and their advisers. We also have extensive experience on UK property matters. Whether you are purchasing, selling, letting, or looking for the best way to hold your UK property, both now and for future generations, the SMP Partners group of companies can provide bespoke tax, structuring, and compliance services tailored to your needs.
SMP Accounting & Tax specialises in providing bespoke property structuring advice and compliance services for High Net Worth Individuals and their advisers. SMP’s tax specialists have a wealth of experience advising UK residents (both UK and non-UK domiciled) and international clients on their property and personal tax matters.
SMP Trustees and SMP Partners provide specialist trust and company services for family wealth, including property structures. They have extensive experience looking after family property, residential and commercial property portfolios, and buy-to-let property.
If you would like further information on any of the points discussed above, or would like to discuss any UK tax related matters with one of our UK tax specialists, please speak to your usual SMP adviser or one of the contacts listed below:
Tel: +44 (0) 1624 683 254
Tel: +44 (0) 1624 682 267