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FEATURE:TAX PLANNING AND MOVING BACK TO THE UK

Tax Planning andMoving Back to the UK By Martin Rimmer, Head of Tax for SelectInvestors, a division of St. James’s Place(Singapore) Private Limited Moving back to the UK is a major life-event and it isn’talways easy getting used to a country which is verydifferent to the one you left. Amidst all the practicalities,the financial aspects can end up being overlooked. In the following article, Martin shares some insights on howto plan from a UK tax perspective.

FEATURE:TAX PLANNING AND MOVING BACK TO THE UK

Tell us about the transition. Can youput this in context for us? Singapore’s highest rate of tax is 22%. Itdoesn’t have National Insurance. Itdoesn’t tax foreign income orinvestment income and gains, and itdoesn’t have Inheritance Tax. Bycontrast, the UK’s highest rate of tax is45%. It has National Insurance andInheritance Tax and it will tax mostworld-wide sources of incomes andgains. It is important to plan ahead. It isn’t alldoom and gloom though, and you wouldbe surprised at how tax-efficient the UKcan be. There is a lot that you have control over,such as when to take advice, buy/selldecisions on assets, when to becomeresident, who should own assets andhow much you want to plan for tax. When you move back to the UK, canthe UK tax your employment earningsfrom Singapore? In most cases the answer is ‘no’. Thatsaid, it isn’t uncommon for someone toleave Singapore and still be entitled to

receive earnings from their formeremployment – perhaps in the form ofon-schedule vesting of deferredremuneration and share options.Equally, that person might have a largeamount of unpaid leave, some sort ofrestrictive covenant or redundancypayment. The rules are complicated. However,generally speaking, if there is a vestingperiod for earnings whichencompasses a period of non-UKresident status, that proportion ofearnings will escape UK taxation, evenif everything is paid after you moveback to the UK. Where a payment relates to time afteryou have become resident in the UK,UK tax will arise on that part of thepayment. The situation with shareoptions is different and it is generallyadvisable to encash vested optionsbefore you become resident in the UK. Redundancy payments and restrictivecovenants also ‘enjoy’ different rules.It is imperative that you receive suchpayments before you become residentand even then, provisions can bringpart of that into UK tax.

Are there any ‘one size fits all’ piecesof advice which apply to everyonemoving back to the UK? Yes, there are. Always take advice butgenerally speaking, you should: • Sell assets which have latent gains before you become resident in the UK • Sell assets which have latent losses only after you become resident • Take account of exchange rates It is important to understand the UK taxtreatment of your assets. Certain non-UK fund holdings and life assurancewrappers can have a particularly nastytax treatment in the UK. If you holdassets which fall into these categories,it is important to take advice about whatto do. It makes sense to ‘take gains’ fromprofitable assets whilst you are non-resident. As Singapore doesn’t taxinvestment returns, taking gains anddealing with punitively taxed assetsshould be fairly painless.

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FEATURE:TAX PLANNING AND MOVING BACK TO THE UK

Finally, be careful with assets which aredenominated other than in GBP.Exchange rates will have fluctuatedsince purchase and this will tend todistort the book gain or loss. As GBP hasweakened over the last few years, itisn’t unusual for foreign currencyassets which look loss-making toactually be profitable in GBP terms.

So, how and when do you becomeresident in the UK?

The UK tax year runs from 6th April to 5th April. Where someone ‘tests positive’for resident status for that year –perhaps because they have moved backto live or work – the default is that theyare taxable in the UK for the whole year.This is obviously unfair. Imaginebecoming resident when you move backin January, only to find that you aretaxed all the way back to the prior April!

Happily, the law allows us to ‘split’ thetax year into a non-resident part andresident part, if certain conditions aremet. Most people qualify for Split YearTreatment by default. However, it istremendously important to understandhow and when you will become

resident as well as the conditions you

must meet in the non-resident andresident parts of the tax year any otherconditions which apply.

With a little planning, you caneffectively choose the date on whichyou become resident. Where that is thecase, we have a more clearly definedperiod in which tax planning steps canbe taken whilst non-resident.

The rules around Split Year Treatmentare complex so, as with all applied taxplanning, you should take professionaladvice to be sure that youropportunities are maximised.

Most of our readers are avid property

investors. Do you have any tips forthem?

Where it is easy to sell investmentassets whilst non-resident, the same isnot as true for properties and landassets. It is important to identify anylatent gains and any Capital Gains Taxreliefs (such as main home relief) whichapply. We can also make calculations ofthe likely change in CGT liabilities underdifferent scenarios.

It is important to identify these latentgains nice and early, so you have ampletime to sell property, if that is what youdecide. For our non-resident clients, wekeep latent property gains underregular review, even if there are noplans to move back to the UK.

You mentioned that the UK can besurprisingly tax-efficient. With ahighest rate of 45% that seemsunlikely. Can you tell us more?

In a presentation we regularly give, weillustrate how a couple can enjoy up toGBP 55,000 of income and gainscompletely free of tax each year just byusing all their tax allowances.

Certain non-UK fund holdings and life assurance wrappers can have a particularly nasty tax treatment in the UK. If you hold assets which fall into these categories, it is important to take advice about what to do.

FEATURE:TAX PLANNING AND MOVING BACK TO THE UK

Using that as a base line, it is then oftenpossible to get your effective rate of taxdown to a single digit figure. Tax-efficiency tends to be driven byhow your investment assets are heldand the type of income they generate.We work to a few basic principles:

Generate sufficient income and gainsto use your tax allowances Generate additional income fromdividends and capital gains Leave a fair proportion of your BasicRate of Tax to accommodate futureincome growth Hold remaining capital in anInternational Investment Account forfurther tax efficiency Consider broader tax planningstrategies such as pension saving,charitable giving, tax-favouredinvestment schemes and other tax-efficient sources

These are established and acceptablemeans of tax planning, which do notinvolve complicated or costlystructures. The potential tax savingsthey generate accumulate over theyears and make for simpler annual taxreturns. Everyone’s situation is different ofcourse, so a personal plan of action isneeded. What are the most commonquestions you are asked by peoplemoving back to the UK? The three questions I am asked mostoften are:

Is there a best time in the year tomove back? Is there anything I should do as anon-resident which would help myplanning as a resident? When should I take advice aboutmoving back?

The answer to the first of these is ‘no’. Ifyou qualify for ‘Split Year Treatment’you can effectively choose when youbecome resident. Later in the tax year isoften better but apart from that, thereisn’t a single time or date when it isbetter to become resident. As to the second of these, two things.First, keep real estate gains underreview. Secondly, the longer a non-resident holds an Internationalinvestment Account, the more tax-efficient it is after you move back. Itmakes sense to get such a planunderway sooner rather than later,either by making regular contributionsor with an initial investment. Thirdly, it makes sense to be aware ofthe key issues which apply at all stages.However, precise advice and action isneeded in the UK tax year before youbecome resident. We normallyrecommend that you have taken adviceby 31st December in the UK tax yearbefore the year you become resident.

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Finally, and of course I would say this,do consult! It might be your first timemoving back to the UK. For me, it isprobably something like a thousandtimes over the course of my career. Taxplanning can make a real difference toyour financial position, so it is vital tostay close to your local tax professionaland seek the right advice beforemoving back. The levels and bases of taxation, andrelief from taxation, can change at anytime. The value of any tax reliefdepends on individuals’circumstances.

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FEATURE:TAX PLANNING AND MOVING BACK TO THE UK

ABOUT THE COMPANYSelect Investors provides first-class holistic tax, wealth andsuccession advice, which istailored for British, Australian andSingaporean clients.

Are there any other things you wouldadvise our readers to think about? Firstly, you are probably going to haveto file a tax return when you move backto the UK. At the very least you willneed to tell HM Revenue & Customsthat you have returned. Be sure toidentify a person or a firm which candeal with cross-border issues oreducate yourself about what is needed.HMRC’s website is a brilliant source ofeasy to understand information. Moving back to the UK also gives agreat opportunity to think aboutInheritance Tax planning as well. Thereis a range of solutions which allow forthe tax-efficient production ofretirement income from arrangementswhich are also Inheritance Taxefficient. Finally, and of course I would say this,do consult! It might be your first timemoving back to the UK. For me, it isprobably something like a thousandtimes over the course of my career. Taxplanning can make a real difference to

your financial position, so it is vital tostay close to your local tax professionaland seek the right advice beforemoving back. The levels and bases of taxation, andrelief from taxation, can change at anytime. The value of any tax reliefdepends on individuals’ circumstances.

Finally, and of course I would say this,do consult! It might be your first timemoving back to the UK. For me, it isprobably something like a thousandtimes over the course of my career. Taxplanning can make a real difference toyour financial position, so it is vital tostay close to your local tax professionaland seek the right advice beforemoving back. The levels and bases of taxation, andrelief from taxation, can change at anytime. The value of any tax reliefdepends on individuals’circumstances.

ABOUT THE COMPANYSelect Investors providesfirst-class holistic tax,wealth and successionadvice, which is tailoredfor British, Australian andSingaporean clients. Visitwww.selectinvestors.asia for more information.

Finally, be careful withassets which aredenominated otherthan in GBP.Exchange rates willhave fluctuated sincepurchase and this willtend to distort thebook gain or loss.