Tax year end planning: International matters


Filed Under: Private Client

Planning tips for the tax year end.

Statutory Residence Test (SRT)

There have been a number of revisions and clarifications to the SRT since last spring. These new rules were brought in from 6 April 2013 and provide welcome certainty to an individual’s UK residency status. However, the test remains incredibly complicated, with many hidden nuances to consider. Individuals whose travel pattern or links to the UK have changed, or are expected to change, may wish to discuss their circumstances with their Blick Rothenberg advisor as a residence review may be appropriate.

Overseas Workday Relief (OWR)

This relief means that an employee is only taxed on their UK work duties and not their non-UK duties, provided the salary relating to this was paid into a non-UK bank account and not brought to the UK.

The relief is available to any non-UK domiciled individual who has not been resident in the UK for three complete tax years prior to arrival. The relief is available for the first three tax years of UK residence, regardless of future intention (i.e. to stay for longer).Given how valuable and tax-effective this relief is, it should be borne in mind as part of any global remuneration strategy.

Changes to dual contract arrangements

A further change to the area of remuneration for internationally mobile employees was announced in the 2013 Autumn Statement and targets so called “dual contracts” – whereby non-UK domiciled individuals split their employment duties into two contracts. Usually, one contract covers their UK role, and the other their non-UK role. Historically, providing the non-UK contract was with a foreign employer, any remuneration related to this would not be taxed in the UK unless brought here. This tax treatment broadly mirrors the above OWR, except it is not limited to three years.

Changes will come in from 6 April 2014 and, in summary, where the individual’s UK and non-UK contracts are with the same employer, or related employers with no substantial difference in duties, the non-UK contract earnings are taxable in full and the relief is denied.

Deemed domicile election

For Inheritance Tax (IHT) purposes, gifts of assets in lifetime or on death between UK domiciled spouses or civil partners are fully exempt from charge. However, where one spouse or civil partner is UK domiciled and the other non-UK domiciled this exemption had been capped at £55,000.

This limit was increased to £325,000 from 6 April 2013 and since 17 July 2013 it has been possible for the non-UK domiciliary to elect to be deemed UK domiciled for IHT purposes, thereby benefitting from the unlimited spousal exemption. Doing so has downsides, primarily because the non-UK domiciled spouse will then be subject to IHT on their worldwide assets rather than just UK assets. However, with careful planning, significant savings can be achieved without significant exposure.