UK: Returning to the UK – Tax Implications and Planning

Last Updated: 19 September 2016
Practice Guide by Verfides

UK anti-avoidance rules are designed to ensure that if a person becomes non-resident for a relatively short period of time, certain types of income, capital gains and remittances made during the period of non-residence will be taxed on them when they return to the UK. These are known as the temporary non-residence rules.

In addition, new rules due to come into effect from 6 April 2017 may affect the UK tax position of returning non-UK domiciled individuals who have been non-resident for less than six tax years, as well as returning individuals who were born in the UK with a UK domicile of origin but who have acquired an overseas domicile whilst non-UK resident.

Individuals affected by these rules should seek UK tax advice, preferably before they come back to the UK, to provide sufficient time for tax planning that may not otherwise be possible after UK residence has commenced.

Temporary non-residents

An individual is regarded as a temporary non-resident if the following conditions are met:

  • They were resident in the UK (and not also Treaty non-resident) in four or more of the seven tax years immediately preceding the year of departure, and
  • They were non-UK resident for a period of five years or less.

Where the above conditions are met, certain types of income or gains received during the period of temporary non-residence are treated as arising in the tax year the individual returns to the UK, and charged to UK income tax or capital gains tax accordingly.

The following items of income and gains are affected:

  • Capital gains on assets owned prior to the individual’s departure from the UK. Generally, assets acquired and sold during the period of temporary non-residence are not caught.
  • Dividends from a UK or overseas close company (but not dividends that relate to overseas trade profits during the period of temporary non-residence), and loans to participators written off.
  • Chargeable event gains, including on the redemption or maturity of life insurance policies or on excess withdrawals over the cumulative 5% allowances.
  • Offshore income gains.
  • Certain payments from pension schemes, including flexible drawdown withdrawals, lump sum payments from a UK pension scheme, and lump sums paid under an employer financed retirement benefit scheme (EFRB).
  • Remitted foreign income (that arose in the year of departure or any earlier year where the income was subject to the remittance basis).

Overseas tax paid on the income or gains can usually be offset against the UK tax liability, up to the amount of UK tax payable.

Non-domiciliaries returning to the UK

From 6 April 2017, non-UK domiciled individuals who have been resident in the UK for 15 out of the past 20 tax years will be regarded as deemed domiciled in the UK. As a deemed domicile, their overseas income and gains will be taxable in the UK on an arising basis, and will not be eligible for the remittance basis of taxation. In addition, deemed domiciled individuals will be liable to UK inheritance tax (IHT) on worldwide assets.

In order to lose deemed domicile, it is necessary to become non-UK resident for at least six tax years.

Therefore, non-domiciled individuals, who, having acquired deemed domicile, leave the UK but resume UK residence within six tax years will be regarded as ‘deemed domiciled’ upon their return to the UK.

It is essential that individuals in this situation seek professional advice, preferably before they return to the UK. In certain cases, it may be possible to manage days spent in the UK to delay the start of UK residence for a period of time to satisfy the requisite six tax years of non-residence. A thorough analysis of the individual’s situation in relation to the Statutory Residence Test will be required.

If it is possible to achieve six tax years of non-UK residence, upon resuming UK residence the individual will not fall within the deemed domicile rules until after 15 years of residence in the UK. They would therefore be able to reset the deemed domicile clock and, for 15 years, be eligible for the remittance basis of taxation in relation to overseas income and gains, and UK inheritance tax would only apply to UK assets.

The timing of return to the UK can therefore be critical in determining the tax treatment of income and gains arising after commencement of UK residence, as well as liability to inheritance tax.

Depending on the individual’s circumstances, and how long they have been non-UK resident, it may be beneficial to create an offshore trust before becoming UK resident. Offshore trusts can be a useful means of sheltering income and gains from UK taxation, whilst at the same time protecting assets from UK inheritance tax, for the period of time the individual is UK resident.

UK inheritance tax – individuals born in the UK

From 6 April 2017, individuals born in the UK with a UK domicile of origin who subsequently acquire a foreign domicile of choice will be regarded as UK deemed domiciled when they become UK resident. This means that, for the period of time they are UK resident, they will be subject to UK tax on their worldwide income and gains on an arising basis and their worldwide assets (including assets settled into an offshore trust from which they can benefit) will be chargeable to UK IHT.

For IHT purposes only there will be a grace period so that inheritance tax will only apply to worldwide assets from the second year of residence in the UK.

After the grace period, assets settled into an offshore trust whilst the individual was non-UK domiciled will also be subject to trust IHT charges, at each ten year anniversary of the creation of the trust, and each time property leaves the trust.

Next Steps

It is essential that individuals who have returned to the UK, or are planning to do so, seek professional advice as soon as possible to assess the tax impact of resuming UK residence.

This is particularly important for the following categories of individuals:

  • Individuals who have been non-UK resident for less than five years
  • Non-domiciliaries who have been non-UK resident for less than six tax years, and who would meet the 15 out of 20 tax year rule when they return to the UK
  • Individuals born in the UK with a UK domicile of origin who have acquired a UK domicile of choice during their period of non-UK residence

Ideally, individuals should plan well in advance to allow sufficient time to implement any tax planning recommendations or potential restructuring of assets.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Useful Resources
Use supplementary pages SA105 to record UK property income on your SA100 Tax Return.
When you start renting out property, you must tell HM Revenue and Customs (HMRC) and you may have to pay tax.
Use online form service or postal form (SA700) to file a tax return for a non-resident company.
Tools
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions