Global Mobility and UK Tax
Global mobility remains restrained today. However, despite the current pandemic, some businesses are taking those first tentative steps to place key players overseas, driven by the need to ensure business survival.
From the perspective of those on the move, what does this mean to employer and employee? The thoughts below highlight solely a few points of note if you are being posted to the UK.
Relocation to the UK
Our regular readers will be following Jenny Hogan at Relocation Consultancy as she addresses the social factors to be considered when on the move. Overlay onto this the financial impact of moving to the UK for more than 24 months and it is worth remembering that you may be able to claim UK tax reliefs, including:
- Tax relief for costs of travel for the employee and immediate family coming to the UK;
- Costs of temporary living accommodation, and
- Up to £8,000 (inclusive of VAT) of relocation costs, paid by the employer.
The £8,000 allowance is available on one relocation, irrespective of whether the outlay is spread over one or two tax years. The costs are likely to be covered, where:
- The change of residential home results from a new role or a change of duties or a change of physical location.
- The new residential home is commutable to the new workplace whereas the old home is not.
- The costs are directly linked to the move.
Note that a time limit applies with the costs being reasonably incurred no later than the end of the UK tax year following the year of relocation. However, particularly during the current global situation, HMRC is open to extending this time limit, upon application.
Tax planning advice should be sought when approaching these reliefs. There are a range of pitfalls, such as seen in the Figg case in 2014 which ruled that the allowance was not permissible where the employee did not intend to relocate permanently.
Limited Time Trips to the UK
If the UK assignment is restricted to a duration of 24 months, the employee may be entitled to much more generous tax reliefs with the assignment regarded as an extended business trip to the UK.
Tax Equalisation or Protection?
When discussing how best to manage the move of key personnel, consider whether you wish to apply Equalisation or Protection.
- Equalisation – the expatriate employee pays the same amount of Income Tax regardless of where they work. In other words, the employer agrees that the employee will be “no better and no worse off” due to the location of the work.
- Protection – the expatriate employee will not pay more tax than would have paid at the home location. If the actual taxes incurred during the assignment happen to be lower than the home country hypothetical tax, then the expatriate would retain the difference.
The calculation behind both routes are complex and require specialist advice and support.
Social Security (National Insurance Contributions, NIC)
Social Security is considered separately to UK Income Tax.
- If there is in place a Totalisation Agreement between the employee’s home country and host country, then NIC may be avoided in the UK.
- In practice, a Certificate of Coverage would be initiated. This typically stipulates that if an employee works in the new country for a short time, typically no more than 3-5 years, before returning to the home country, then the employee continues to pay social security in the home country.
UK Tax – Residency
In the UK, this is governed for tax purposes via the Statutory Residence Test (SRT).
- If, under SRT, you are regarded as UK tax-resident then you would pay UK tax assessed on your worldwide income and capital gains, subject to any deductible foreign tax credits available under the relevant double tax treaties.
- If, under SRT you are regarded as UK non-tax resident then you would pay UK tax assessed solely upon UK-sourced income and capital gains.
The SRT UK Tax Residency status is evaluated against each UK tax year (which runs 6 April to 5 April).
UK Tax – Domicile
- Domicile relates to a person’s origin (unless amended by choice, dependency or deemed status) and generally refers to their permanent home. It is a common law concept to determine which legal system applies to an individual, where that individual has connections with more than one jurisdiction.
- An individual’s domicile is not necessarily the same as their nationality, or the country in which they happen to be living; a person can be a British citizen who has been resident in the UK for many years and yet be domiciled elsewhere.
- Domicile comes in the following forms, but you can only have one at any point in time:
- Origin – everyone is born with one!
- Choice/Dependency – everyone has the ability to change origin to choice/dependency where it is clearly asserted that a change has been made
In addition to the common law approach to domicile, we also have deemed domicile which is covered by statute. Through this route an individual will be deemed to be UK domiciled when certain milestones are achieved, thus influencing their tax treatment
As already discussed, for those who are UK tax resident they will normally be taxed on the arising basis which means that their worldwide income and gains would be subject to UK taxes, irrespective of any taxes suffered in other countries. Overseas taxes suffered would normally be subject to relief under the relevant double tax treaties, or similar.
However, if those UK tax residents were not UK domiciled, then the tax treatment of those overseas income and gains will change. The individuals would be able to choose whether to be subject to UK tax on the income and gains as for the UK domiciles above or on the Remittance Basis (RB).
Under the RB (applied on a UK tax year), the individuals would pay UK tax on:
- any income and gains which arise/accrue in the UK; and
- any foreign income and gains that the individuals bring into the UK.
Remember, RB is only available for those who are not UK tax domiciled.
Hopefully, the above gives you food for thought. If you are considering your options then please do feel free to reach out to Briars at firstname.lastname@example.org and we would be delighted to talk to you.