Relocating to the UK Post-Pandemic: Tax Implications
Covid-19 has cast a spotlight on our homes, and the same is true of our clients. The pandemic has given them time to take stock, reassess their priorities,…
By Francesca Ffiske / February 05, 2021
Covid-19 has cast a spotlight on our homes, and the same is true of our clients. The pandemic has given them time to take stock, reassess their priorities, and for many to make plans for relocation. This week we look at this topic from a UK perspective – what is the anticipated tax landscape over the next 12 months?
Planning:
The UK is in an unprecedented level of debt, and while there are no firm plans to raise taxes yet, it is very likely to happen eventually. Small changes to income tax, National Insurance and VAT would go some way to helping with the deficit (of course, not entirely, but they would be simpler than other more expensive changes to taxation). However, these are unlikely given that the Conservatives have already promised to keep these rates the same.
Therefore, we need to look to reform or new taxes. In the last two years we have seen two OTS reports on Inheritance Tax, and the first OTS report on Capital Gains Tax (CGT). Inheritance Tax reform seems somewhat less likely given that it only raises around £6 billion per year and is already unpopular, and so CGT seems to be the more front of mind. What we might see there is an alignment or at least an increase in rates.
This need not panic clients too much. Those who are non-domicile can still access the remittance basis, and they can still defer CGT. If they have offshore trust structures, it is only if they are receiving benefits or capital payments in the UK that they may be subject to a much higher rate of tax (up to 72% if they align capital gains tax rates with income tax rates). However, this can be circumvented by the fact that they don't need to take distributions, and that trusts are still a great deferral mechanism for CGT.
It's worth noting that these conversations are prompting a lot of discussions, but we need not rush into implementation. The reports that have been produced are either recommendations or research, they are not proposals or government policy. The prediction is that the UK needs to come out the other side of the pandemic to see and assess the damages, and therefore it is unlikely that we will see any announcements until at least autumn, to be implemented in spring of 2022.
Instead, advisors should be looking to gauge their clients' future plans for residency. Review their existing structures in relation to their current goals and future plans. Will they want to travel as much in the future? Will they want to move to be closer to loved ones? Where people are choosing to live is not always tax-driven, and now is the perfect time to begin future-scanning.
Contentious:
The tax authority's attitude towards that and how that might be a factor in emigration.
Over the last few years, the UK has developed a much more aggressive compliance enforcement environment. HMRC has more power, a greater host of penalties and, like all tax authorities these days, they have access to far more information which comes from a variety of sources: CRS, data leaks, and supercomputers called 'Connect' which displays tax anomalies.
However, since March 2020, HMRC has taken a more friendly, or at least more passive approach. This could be due to internal resourcing as many of their internal staff have been repurposed for the furlough schemes, and so they simply don't have the manpower to carry out investigations. This should be viewed as temporary.
Due to the level of debt in the UK, funds will need to be found. One way is to make forward-looking changes to the tax system to create more tax, but the other is to mind the transactions and structures that already exist. When the pandemic is over, there should be an increase in compliance enforcement anywhere there is a hint of evasion or deliberate non-compliance.
If anything, this could lead to a more aggressive environment. HMRC's powers are increasing all the time. The most notable is the Financial Institution Notice, which was proposed last year, which would circumvent the fact that HMRC currently has to go to the tax-payer for further information in an investigation. With the new powers offered by the proposed policy, they would be able to go to financial institutions to get further information without the individual's consent. This would be a huge shift in the UK tax landscape, and is yet another illustration that the UK is beginning to gain a reputation as a hostile compliance environment.
With thanks to Fiona Poole, Maurice Turnor Gardner, and Hugh Gunson, Charles Russell Speechlys