What is the tax position?
The tax implications of bringing funds into the UK are often shrouded in mystery. Why?
Well, the main reason is quite simple: the tax implications of bringing funds to the UK differ depending on whether you are domiciled in the UK or abroad. In addition, it is not just transfers of money that need to be considered as bringing other assets into the UK can also trigger a tax charge, but that is a topic for another day.
What is domicile?
Domicile is a general legal concept which, in simple terms, means the country where you permanently belong.
But determining your domicile status can be complex. Everyone inherits a domicile of origin at birth from their parents. If your parents were married when you were born, you will acquire your father’s domicile. Your domicile then follows that of your parents until your 16th birthday.
After that your domicile only changes if you acquire a new domicile of choice. To do this, you have to move to another country and establish a permanent intention to remain there. Lots of factors are taken into account in deciding your domicile, for example, the location of property, family and business links.
Once you know where you are domiciled, it is much easier to decide if the offshore funds you are bringing to the UK will be taxable. For the purposes of this exercise, you will also need to decide if you are UK resident.
If you are UK-domiciled…
If you are domiciled, resident and ordinarily resident in the UK, then you will be liable to UK tax on your worldwide income and gains as they arise. This means that if you bring foreign income or capital into the UK, there is no tax charge on the transfer of the funds. This is because the foreign income and gains have already been taxed in the UK.
If you happen to be UK-domiciled, but have properly ceased UK residence and are not ordinarily resident in the UK, you can bring funds into the UK without a UK income tax charge. However, if you resume residence following a relatively short absence, beware of the temporary non-residence rules that could tax gains realised during your absence on your return.
In some rare cases, you may be resident in the UK, UK-domiciled, but not ordinarily resident. In this instance you will need to seek professional tax advice as the tax position here is complex.
If you are not UK-domiciled…
If you are not domiciled in the UK or ordinarily resident in the UK, but are resident here, that is when things get complicated.
Non-domiciled people – or non-doms – have these options:
They can pay UK tax on their worldwide income and gains OR they can choose to pay tax on foreign income only when they bring the funds to the UK (subject to paying an annual remittance basis charge if they have been resident for a number of years).
Non-domiciled people who have always paid tax on their worldwide income and gains, can bring funds into the UK without any further tax charge.
In all other cases, non-domiciled people will need to go through a detailed analysis. When a client comes to us, for example, we will look at the following:
- In what tax years have they claimed the remittance basis?
- In which year did the income or gain arise?
- Has the foreign income or gain already been subject to UK tax?
- Has the income or gain been nominated for the purposes of the remittance basis charge?
It is only once all of these points have been analysed that it will be possible to determine if the transfer of the funds from abroad are taxable.
If the remittance basis has always been claimed, then bringing foreign income or gains from abroad will give rise to an income tax or capital gains tax charge on that amount. The remittance will need to be reported on a self-assessment tax return, and the tax paid on 31 January following the end of the tax year.
Help and advice
For most UK-domiciled individuals it is likely that there are no tax implications on bringing funds to the UK. But for non-domiciled individuals the matter is by no means straightforward, and it will be necessary to seek professional tax advice. Please do get in touch if you’d like to talk to a Grant Thornton tax specialist.
Image: (CC) King Huang / Flickr