Taxation of international executives
The extent of the liability to UK tax on earnings depends upon the individual’s residence status in the United Kingdom. This is determined using the Statutory Residence Test (SRT).
The domicile status of the individual can also affect the tax liability and this is particularly relevant as many cross border inbound assignees are likely to be foreign domiciliaries (non-doms).
The taxation of non-doms has been significantly amended in the recent Finance Bill and the changes came into effect from 6 April 2017. The main change is the introduction of the concept of “deemed domicile” for Income Tax and CGT and the alignment of the IHTconcept of deemed domicile with the new Income Tax/CGT definition.
Broadly speaking this means that a non-dom now becomes deemed domiciled in the UK once they have been resident in the U.K for 15 out of the previous 20 tax years. Once deemed domiciled, the individual can no longer claim the remittance basis of taxation (unless subject to the 2,000 GBP (Pound sterling) de minimis – see below) and is liable to UK IHT on their worldwide assets.
The anticipated impact of this change on short-term assignments should be minimal.
The other main change is targeted at those born in the UK and who had a UK domicile of origin but now claim to have a foreign domicile of choice. Under the old rules, such individuals would benefit from the same UK tax treatment as other non-doms, notwithstanding their former links to the UK.
Under the new rules however, while UK resident, they are treated as deemed domiciled for UK tax purposes even though they assert a foreign domicile of choice under general principles. As such, the individual can no longer claim the remittance basis of taxation (unless subject to the GBP2,000 de minimis – see below) and is liable to UK IHT on their worldwide assets (subject to a very short grace period).
The impact on those who fall within the scope of this change (i.e. UK resident, born in the UK with a UK domicile of origin but asserting a foreign domicile of choice) is likely to be materially adverse and advice should be sought immediately.
The article that follows is based on the law as it stands at the time of writing (January 2019).
The maximum UK income tax rate for the tax year ending 5 April 2020 is 45 percent (the UK tax year that runs from 6 April 2019 to 5 April 2020 is commonly referred to as 2019/20).
The UK tax authority is known as Her Majesty’s Revenue and Customs (HMRC).
The official currency of the UK is the pound sterling, often referred to just as sterling or as the British pound (GBP). The UK has a decimal currency system with 100p (pence) making up GBP 1 (one pound).
Herein, the host country/territory refers to the country/territory to which the employee is assigned. The home country/territory refers to the country/territory where the assignee lives when they are not on assignment.
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