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Uk bank account and income tax for employee in the UK

If the employee is non UK resident he would be exempt from UK income tax on overseas salary income and would only be subject to UK tax on salary that relates to duties carried out in the UK.

If he is actually undertaking employment duties in the UK he would need to split the salary into the UK element (taxable) and the non UK element (non taxable).

It should be noted that the alternative view is if he is carrying out all of his duties abroad except for only 'incidental' UK duties he would in any case be wholly exempt from UK income tax on the salary.

The employee should therefore look at the duties actually carried out in the UK to determine whether they were only incidental to the overseas duties or not.

In any case he could have his salary paid into a UK bank account with no impact on his UK tax position. Having a UK bank account would not effect his non resident status.

In addition having a UK bank account to receive the salary for overseas duties would not make that payment chargeable to UK tax.

If however he was UK resident but non domiciled and performed his duties overseas having a UK bank account to receive the salary may not then be advisable. He could claim the remittance basis for overseas salary income, however having this paid into a UK bank account would effectively ensure that the remittance basis would not apply.

Anyone coming to the UK to work and who established UK residence would have 8 years before they would need to start accounting for the £30,000 tax charge for the privilige of using the remittance basis.

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Can I redomicile a company overseas?

Therefore to avoid corporation tax in the company you would need to show that it was non resident and also that it did not have a UK trade.

A UK incorporated company is always assessed as UK resident and it could not usually be domiciled abroad. The main exception to this is where it's classed as treaty resident overseas for the purposes of a double tax treaty.

In this case its deemed to be non resident for UK tax purposes. It would still need to complete UK tax returns etc though.

If you did opt for this the migration of the company (ie transfer of residence overseas) would result in an exit charge in the UK company. As such it would be deemed to have disposed of and reacquired all its assets for CGT purposes. Therefore any gain on company assets would be charged to UK corporation tax.

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Will you pay tax on an inheritance?

So whether the inheritance is from the UK or a relative overseas you can receive it free of UK income and capital gains tax.

The only tax you'll need to consider is UK inheritance tax.

Inheritance tax is based on the position of the deceased person -- not you.

The key issues will usually be their domicile status and the location of their estate.

If they are non UK domiciled they'll only be charged to inheritance tax on their UK assets. By contrast if they're UK domiciled they'll be charged on their worldwide estate.

So if you receive an overseas asset as an inheritance from a non UK domiciled relative there will be no UK tax and you can receive it totally tax free.

If you receive a bequest from a UK domiciliary (or any UK bequest) you'll need to consider the UK inheritance tax position.

The general rule is that anything that is left via the will (or under the intestacy rules) and which is charged to inheritance tax would fall on the personal representatives. This means that the executors or administrators would have the primary liability to settle any inheritance tax.

If the receipt was gifted during the deceased persons lifetime it would be classed as within the deceased persons estate if he or she died within 7 years of making the gift. In this case the liability for inheritance tax would fall on the receipient of the gift.

In all cases though the value of the estate would need to be compared with the available nil rate band. Only the excess of any estate above the nil rate band would be subject to inheritance tax.

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Entrepreneurs relief and the directors loan account

Under the previous taper relief regime, someone incorporating a trading business into a company could claim taper relief to reduce any gain by 75%. Therefore a popular strategy is to restrict the capital gain arising so that the gain is fully covered by taper relief and the annual exemption.

The gain is typically restricted by only claiming partial gift relief.

For example if the annual exemption was £9,500, the capital gain is restricted to £38,000 with the rest heldover under gift relief.

There is no capital gains tax payable as after 75% taper relief and the annual exemption the gain is nil. However the proceeds on the gain can then be extracted free of CGT.

The introduction of a flat 18% rate of CGT would have eliminated this. However the new Entrepreneurs relief should allow the tax free loan account route to continue but in an amended form. ie, as the annual exemption is £9,600, the gain could be resticted to £17,280.

On a gain of £17,280 Entrepreneurs relief would reduce this by 4/9 (£7,680) leaving a capital gain of £9,600 which would be fully covered by the annual CGT exemption.

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Capital losses and non UK domiciliaries

The 2008 Finance Bill removed that restriction and therefore they will now obtain relief for capital losses just as for UK domiciliaries providing the remittance basis is never claimed. Therefore the losses of the overseas assets can be offset against other capital gains of UK assets.

If the remittance basis is claimed at any point, then there are special provisions that apply.

These apply so that:

if the individual makes an election, then the losses can be offset subject to some special rules.

These rules allow overseas capital losses to be offset against other gains but it's important that the election is made.

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Using a UK company as a corporate partner to avoid UK tax

Posted By :
Posted At : Tuesday, Aug 19, 2008

One way of using a limited company to reduce tax is as the managing partner in a limited liability partnership. Partnerships are transparent for tax purposes.

Therefore where a partner is non-resident and the partnership income has a non-UK source, the partner has no UK tax liability.

Typically, the UK company will be a form of nominee and be entitled to only a small share of the profits under the profit sharing agreements. Most of the income will go to the overseas partners.

Customers, will however, deal with the UK partner, and may by so doing be able to circumvent blacklist and other problems.

Note that unlike a company the tax liability is not usually affected by the "management and control" of the business. Therefore if the partners want to have partnership meetings in London and take decisions there about the management and control of the partnership business, they can do so. They would though need to ensure that there was no UK trade (otherwise the profits would be subject to UK tax).

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Tax on selling an offshore company

Posted By :
Posted At : Monday, Aug 18, 2008

Anyone contemplating selling shares in an offshore company would need to consider both the standard Capital Gains Tax rules that apply when any asset is sold as well as the specific anti avoidance legislation that can apply to overseas assets.

A capital gain will arise on the disposal of the shares and after 6 April 2008 this will be at a flat 18% rate of CGT with no taper relief or indexation allowance. The annual exemption could still be deducted. Entrepreneurs relief could be due though to subject part or all of the gain to less an effective 10% rate of CGT.

If you were Non UK resident you'd be exempt from CGT, subject to the five year requirement.

If you were non UK domiciled (but UK resident) you could avoid UK CGT by retaining the proceeds overseas. However this will only apply after 6 April 2008 if you've either been UK resident for less than 8 tax years or if you pay a £30,000 tax charge to the Revenue.

If an asset deal was planned, the company itself may be exempt from tax on the gain if it is non UK resident. There are though anti avoidance rules to attribute gains to UK resident and domiciled shareholders. After April 2008 non doms are also subject to the remittance basis in respect of the offshore capital gain (where they claim the remittance basis).

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2008 CGT changes and using a property company

Posted By :
Posted At : Friday, Aug 15, 2008

The CGT changes that apply from April 2008 as well as the general changes to the tax rates over the next year or two mean that if you own property personally there will be a CGT rate of 18%, whereas the income tax on rental income will be 20% for basic rate taxpayers and 40% if you're a higher rate taxpayer.

If a company is used the company would be looking to pay corporation tax at 22% at the small companies rate, rising to 28% if the company paid tax at the full rate on both income and gains.

Even under the current regime owning the properties personally is likely to be preferred in CGT terms, and the changes to the tax rates make this even more favourable.

Any future disposal of the properties would be taxed at 18% if owned personally, but 22% (or more) using a company. This assumes as well that no cash is extracted from the company and that the proceeds were reinvested into more assets. If proceeds needed to be extracted and the dividends exceeded the available basic rate tax band a further income tax charge at an effective 25% would be charged.

Therefore for property investors owning personally still retains significant tax advantages.

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Non residents and tax on UK bank accounts

Posted By :
Posted At : Thursday, Aug 14, 2008

Non UK residents often still retain UK bank accounts. A common question is whsther this opens the doors to any UK tax liability.

In itself having a UK bank account would not involve any UK tax, however, of crucial importance is the source of the underlying funds. If, for example, you receive payments in respect of a UK employment or are engaged in a UK trade, the receipts to the bank account would clearly be within the scope of UK tax. If however, you are based overseas and have no UK source income, the fact that you received income to the UK bank account should not crystallise a UK income tax liability.

Any interest earned on the funda in the account would usually be subject to UK income tax at source. However as a non ordinary resident you could elect to receive any interest free of UK tax being deducted.

In terms of inheritance tax though, the position is slightly different. If you're a UK domiciliary you will be subject to UK inheritance tax on any UK bank balance even if you're a non UK resident.

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Property let to family at a low rent

Posted By :
Posted At : Tuesday, Aug 12, 2008

As a general rule the same tax implications arise when you let property to family, as when you let property to unconnected third parties.

However there is one key exception.

If you created an income tax loss by letting the property to family at a low rent the Revenue would be likely to apply special anti avoidance rules to prevent a loss arising.

The Revenue view is that unless the you charge a full market rent for a property (and impose normal market lease conditions) it is unlikely that the expenses of the property are incurred wholly and exclusively for business purposes. Therefore strictly, they can't be deducted in arriving at rental business profits.

However, if you would be letting the property below the market rate you can deduct the expenses of that property up to the rent you get from it. This means that the uncommercially let property produces neither a profit nor a loss.

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