Taxation of international executives
Are there social security/social insurance taxes in the United Kingdom? If so, what are the rates for employers and employees?
Unless exempted by a reciprocal agreement or under the EEA rules, Class 1 National Insurance Contributions (NICs) are payable by both the employer and employee in respect of an employee working in the United Kingdom. The contributions are not deductible from compensation for income tax purposes. There is no ceiling in respect of employee or employer contributions.
Class 1 Primary NIC is payable by the employee at 12 percent for earnings between the Primary and Upper thresholds (GBP183 per week and GBP962 per week respectively) and at 2 percent thereafter.
Class 1 Secondary NIC is payable by employers at 13.8 percent on total compensation over the earnings threshold (GBP169 per week for the 2020/21 tax year).
Class 1A NIC (at the same rate) is paid by the employer only on most payments/benefits in- kind, such as rent, car, school fees, and so on. The benefit subject to Class 1A National Insurance is the same as computed for tax purposes.
The United Kingdom has concluded a number of social security treaties, which usually provide for limited periods of exemption from NIC (the U.S. treaty provides for a 5-year exemption period if certain conditions are met) on the basis that contributions continue to be paid in the home country/jurisdiction.
A secondee working in the United Kingdom from another EEA Member State might be covered by European Council regulations which, in prescribed circumstances, will exempt them from NIC, provided contributions continue to be paid in the home country/jurisdiction.
If no treaty or EEA arrangements apply, a foreign national employed by an overseas employer and sent to the United Kingdom on a secondment will usually be entitled to a 1-year exemption from NIC. The employer will also be exempt from NIC during this period. For a UK national employed in the UK and assigned to work overseas will usually continue to be liable for NIC for 52 weeks after departure. The employer will have a corresponding liability.
The Brexit transition period started on 31 January. The current European Social Security regulations will continue to apply until the end of the transition period on 31 December 2020.
Social Security arrangements are part of the current discussions between the UK and the EU regarding future relations and the rules in respect of individuals currently covered by the European social security regulations are likely to change from 1 January 2021.
There is no wealth tax in the United Kingdom.
Inheritance tax is a capital tax, charged on assets passing on death, gifts made to most trusts throughout the donor’s lifetime and on gifts made to individuals within the 7 years prior to death. Transfers between husband and wife (if they are both UK domiciled) are generally not chargeable, and various other relief and exemptions are available.
For an individual who is domiciled in the United Kingdom (whether UK resident or not), worldwide assets have to be taken into account. For a non-dom individual, only UK situated assets are subject to inheritance tax. Non-doms who have been resident in the UK for 15 out of the previous 20 tax years are treated as deemed domiciled for IHT purposes and are so subject to UK IHT on worldwide assets.
Special rules have been introduced which apply to foreign non-natural persons (companies, partnerships etc.) owning UK residential property and which seek to treat them as UK assets when owned by a non-dom. This means that, for non-doms, such assets are now within the scope of UK IHT; previously they were treated as the foreign assets they are and so fell outside the scope of UK IHT.
The rules are widely drafted and can also capture loans made to such entities or to individuals who use them to acquire such entities or indeed to acquire UK residential property directly. Care is required.
Inheritance tax is payable only if the cumulative total of chargeable transfers exceeds the statutory limit for the tax year. This is currently set as GBP325,000. There is an additional nil- rate band when a residence is passed on death to a direct descendant. The current inheritance tax rate is 40 percent. For lifetime gifts to most trusts, if the value given up is over the statutory limit, an immediate inheritance tax charge of 20 percent arises on that excess value at the time of the transfer, with up to a further 20 percent chargeable if the donor dies within 7 years.
As with other taxes, double tax relief may be available if assets are chargeable to inheritance tax in the United Kingdom and to a similar tax in another country/jurisdiction.
Are there real estate taxes in the United Kingdom?
The sale or other transfer of real estate within the UK is subject to Stamp Duty Land Tax (SDLT) at rates up to 12 percent (15 percent if not held personally).
The rates and bands for residential property purchases by individuals are as follows:
|Property or lease premium or transfer value||SDLT rate|
|Up to GBP125,000||Zero (still needs to be reported)|
The next GBP125,000 (the portion from GBP125,001 to GBP250,000)
The next GBP675,000 (the portion from GBP250,001 to GBP925,000)
The next GBP575,000 (the portion from GBP925,001 to GBP1.5 million)
The remaining amount (the portion above GBP1.5 million)
From 26 November 2015, a new 3 percent surcharge applies to acquisitions of second (or third, fourth etc.) residential properties; the 3 percent is added to the normal SDLT rate.
Foreign residential property counts for the purposes of the surcharge. Relief is available if the property is to replace a main residence but the main residence has not yet been sold.2
A Non-UK resident SDLT Surcharge of 2 percent will apply from 1 April 2021 on non-UK residents purchasing residential property in England and Northern Ireland.
In Scotland SDLT does not apply; instead a Land and Buildings Transaction Tax (LBTT) applies. From April 2018, Land Transaction Tax (LTT) will replace SDLT for land transactions in Wales, subject to transitional provisions. LTT also differs from SDLT (and LBTT) in a number of respects, including tax rates and tax bands.
This is a complex subject, and specific advice should be sought in advance about any particular transaction being considered.
Are there sales and/or value-added taxes in the United Kingdom?
The United Kingdom imposes value-added tax (VAT). The system is administered by HMRC. VAT is a tax on consumer expenditure. Businesses (where they are VAT registered and fully taxable) do not bear the final costs of VAT. They are able to charge VAT on the supplies that they make (output VAT) and recover VAT on purchases that they have made (input VAT).
There are currently three rates of VAT - standard rate (20 percent, which is charged on the provision of most goods and services), zero rate (0 percent, which is charged on items such as food, books and children’s clothing), and reduced rate (5 percent, which is charged on fuel amongst others). Attributable input VAT is recoverable on these supplies by businesses.
Some goods and services may be exempt from VAT. Examples of exempt supplies include the provision of health and welfare, finance and land. No VAT is chargeable on exempt supplies. Businesses that make exempt supplies cannot reclaim input VAT.
Where a body makes both exempt and taxable supplies, it is regarded as partially exempt. There are methods that these kinds of businesses must use in order to establish the proportion of input tax incurred which they can recover.
Are there unemployment taxes in the United Kingdom?
There is no unemployment tax in the United Kingdom.
Are there additional taxes in the United Kingdom that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on.
The only local tax for individuals is council tax and it is based on the value of an individual’s home. The charge varies from district to district. A similar tax applies to secondary residences and is paid by the tenant or the owner-occupier.
Stamp Duty Reserve Tax (SDRT) is payable when an interest/option/right in stocks and shares in UK companies or foreign companies with a UK share register are purchased in an electronic, ‘paperless’ transaction. This is usually collected automatically and billed to the purchaser by their brokers. If the individual does not use a broker, they must ensure that HMRC are notified of the purchase and the SDRT paid by the appropriate deadline.
SDRT is charged at 0.5 percent of the actual consideration paid for the securities, rounded to the nearest penny.
If an individual purchases the securities by paper as opposed to paperless (usually applicable for private companies), Stamp Duty is payable (not SDRT). Again, the purchaser is responsible for notifying HMRC of the transaction and paying the Stamp Duty. Where consideration has been paid, Company Secretaries are not permitted to update the company share register unless they receive a stock transfer form “stamped” by HMRC to confirm the duty has been paid.
Stamp Duty is payable by the purchaser and is chargeable at 0.5 percent of the actual consideration paid for the shares rounded down to the nearest GBP5.
Is there a requirement to declare/report offshore assets (e.g. foreign financial accounts, securities) to the country/jurisdiction’s fiscal or banking authorities?
There is no requirement to report foreign assets (i.e. non-UK assets) to either the UK fiscal or banking authorities.
However, the UK has signed up to automatic exchange of information under the following:
As such, while there is no need to declare foreign assets to HMRC (the UK taxing authority), information will be captured by foreign tax authorities who have also signed up the above network of automatic exchange and that information will be exchanged with HMRC. The information exchanged will depend on the specifics of the relevant agreement.
All information contained in this publication is summarized by KPMG LLP, a UK limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The information contained in this publication is based on Income and Corporation Taxes Act 1988; Income Tax (Earnings and Pensions) Act 2003; Income Tax (Trading and Other Income) Act 2005; Income Tax Act 2007; Finance Act 2013; Taxation of Chargeable Gains Act 1992; Taxes Management Act 1970; Social Security Contributions and Benefits Act 1992; Social Security (Contributions) Regulations 2001; and Inheritance Tax Act 1984 (all as amended by subsequent legislation); Her Majesty’s Revenue & Customs (“HMRC”) booklets as follows: “Guidance Note: Statutory Residence Test (SRT), RDR3” published December 2013; “Guidance Note: Overseas Workday Relief (OWR), RDR4” published May 2013; immigration rules on the UKVI website at https://www.gov.uk/guidance/immigration-rules and https://www.gov.uk/settled-status-eu-citizens-families
© 2021 KPMG LLP, a United Kingdom legal liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.