If you’re a business owner or entrepreneur from India who’s planning to move to the UK, you’ll need to get to grips with the complexities of UK tax laws.
If you don’t, you could find yourself in hot water with the UK authorities or simply paying more in tax than is necessary – which is never a good thing!
HM Revenue & Customs (HMRC) – the body that regulates and enforces taxes in the UK – is intensifying its efforts to scrutinise offshore income and gains, making it even more important to remain compliant.
Understanding your tax status
Your tax liabilities in the UK largely hinge on your residence and domicile status.
Understanding the nuances between the two can impact your Income Tax, Capital Gains Tax, and Inheritance Tax liabilities.
Changing your domicile status, while complex, can have profound tax implications.
Residence status is primarily determined by the amount of time you spend in the UK and plays a direct role in how you are taxed.
Domicile, on the other hand, is a more nuanced concept, often linked to your permanent home or your long-term intentions regarding where you live.
It’s crucial to understand that while residence status can change frequently, depending on your physical presence in the UK, domicile is a more enduring status and is less susceptible to frequent changes.
If you are considered a UK resident, you are generally taxable on your worldwide income and gains.
However, if you are non-UK domiciled, you might have access to the remittance basis of taxation, potentially offering a substantial tax benefit on foreign income and gains.
This means that your overseas income would only be taxable in the UK if it is brought into the country.
The Statutory Residence Test is your key to deciphering your UK tax residency status.
It takes into account the number of days you spend in the UK and your ties to the country.
Implications of dual residency
Dual residency makes things even more complicated as your global income might be subject to tax regulations in more than one jurisdiction.
To manage the implications of dual residency effectively, it’s essential to be aware of the tax laws and agreements that the UK has with other countries.
For instance, the UK has Double Taxation Agreements (DTAs) with India, which are designed to ensure that income is taxed in only one of the two countries, or at least that tax paid in one country can be offset against tax due in the other.
However, we always recommend that individuals looking to capitalise on DTAs speak to an experienced and qualified international tax adviser who can determine the exact amount of tax you are liable for and prevent you from paying too much.
When should you start tax planning?
Given the intricacies of UK tax law, engaging with a specialist tax adviser is essential.
Expert guidance ensures that your tax planning is both efficient and compliant with UK regulations.
Timely tax planning, ideally in the tax year before your move, can set a solid foundation for your financial affairs when you arrive in the UK.
It would be wise to discuss proper tax planning with an international tax adviser at SMCO before your move.
