Have you recently started to live and work in the UK but consider your “home” country to be elsewhere? If so, you are likely to be a UK resident but non-domiciled in the UK.
If prior to becoming UK resident, you were also non-UK resident for a continuous period of 3 tax years, you are likely to be eligible for a special Overseas Workday Relief (“OWR”) exemption.
Such individuals who earn income (either abroad or both in the UK & abroad) are able to benefit from the “remittance” basis of taxation which means that the UK revenue authority would not tax income which is earned abroad and kept abroad.
As always, the related tax rules are complex and somewhat confusing.
Overseas Workday Relief:
Individuals who become resident in the UK but continue to work abroad can benefit from the Overseas Workday Relief which is premised on the UK’s remittance basis rules of taxation. Under the OWR an individual’s income for work performed overseas is potentially not taxable in the UK.
OWR is available to an individual for the first 3 tax years when the individual becomes UK resident. A significant number of workers come to the UK for short or medium term placements and miss this tax saving opportunity. The OWR is not available after the first 3 tax years, therefore proactive planning on an individual’s circumstances would stand to benefit the most.
An individual in the above explained UK resident but non-domiciled position will be able to select the remittance basis of taxation in order to benefit from UK tax savings. There are various conditions to be met in order to claim the remittance basis such as not remitting your foreign income or capital gains into the UK, and forgoing your personal allowances in the year of the claim.
In addition, for the Overseas Workday Relief to apply, employment duties need to be performed wholly or partly abroad, accurate records of travel and the duties performed need to be kept, and income relating to the overseas proportion of employment duties need to be kept abroad.
The retention of income abroad for non-UK domiciled individuals can be tricky and needs to be planned carefully.
Cleansing of mixed fund accounts:
When foreign income and gains are kept abroad (most likely in one or more bank accounts) for more than one year, the accounts can end up becoming “mixed fund accounts”. A mixed fund account is one which contains any mixture of capital, capital gains, income etc.
The 2017/18 and 2018/19 tax years are golden years where the government is bringing in rules for helping remittance basis users and allowing them in segregating their mixed fund accounts to achieve a more tax efficient remittance strategy. This facility is not likely to be available after the 5th April 2019. Until now the disadvantage was to the tax payer as any remittance from the mixed fund account would first favour H M Revenue & Customs’ position for taxing that remittance. Taxpayers will now have the ability to decide which funds to remit and will know beforehand whether that remittance is made out of capital or whether it is taxable income/gains.
We assist clients in arranging their UK tax affairs so that they are not paying excessive tax.
Where can MAH help?
We can provide you with a no obligation consultation in order to determine your exact circumstance. You may already be in the UK and have started working here in which case you should get some professional advice as fast as possible. You could be planning your move to the UK in which case you can proactively plan your tax affairs so that you can save as much UK tax as possible.
Book your free no obligation consultation
A free, initial, no obligation consultation is available, which should reveal to you whether there is any possibility of saving tax given your residence but non-domiciled status in the UK. To book your consultation with our tax specialist Prashant Malde, please contact us.