The UK’s ease of doing business, transparent rule of law, long-standing democratic foundations and respect for tangible and intangible property rights underpin its economy. The country’s dynamism is particularly evident in its robust and growing tech, engineering and life sciences industries.
Just as entrepreneurs continue to expand into and operate in the UK, many internationally orientated families find the country to be an ideal base. The UK is conveniently located between Asia and the Americas, boasts one of the world’s few truly global cities in London, and has an outstanding education system, among other benefits.
In this article, we look at some important areas such as taxation and residency requirements that entrepreneurs and high-net-worth families should consider when planning a move to the UK.
Some UK residency options
The UK’s immigration rules essentially look to grant permanent residency to applicants who demonstrate a commitment to the country. In practice, this involves making the UK their primary residence for five consecutive years by entering under one of its visa programmes and remaining for a minimum of six months in the UK during each of those years. Once the applicant demonstrates this, they obtain Indefinite Leave to Remain (ILR), which in turn gives them permanent residency and visa-free entry. This precedes obtaining UK citizenship.
Tier 1 (Investor) visa
The Tier 1 (Investor) visa is a popular way to move to the UK for individuals with 2 million pounds or more to invest in UK corporate securities. After an initial screening and application, the applicant will be issued a visa for three years. The visa can be renewed for another two years if certain conditions are met. Investments of 5 million pounds and 10 million pounds can reduce the timescale to three and two years respectively.
Other visa options
For entrepreneurs, the UK Home Office revamped its eponymous visa in 2019, and renamed its Innovator visa. As part of the application-approval process, an independent body must assess and endorse the business plan for a new company with an original business idea (that is, an idea unlike anything in the market) and verify that it has demonstrable growth potential. Approval numbers are currently in the low single digits, so this is a challenging route.
Entrepreneurs in this situation may want to explore other options, such as the Representative of an Overseas Business visa. This visa may be suitable for qualified and senior family members coming to set up a UK subsidiary or branch of their business. The visa’s rules and conditions vary by individual situation.
Individuals interested in moving to the UK must understand the country’s tax system and tax planning options. Assuming an individual is seeking to obtain ILR, they automatically become UK tax resident from the first tax year of arrival. They will likely be considered non-domicile (often called a “non-dom”), assuming they have no prior family connection to the UK.
Non-dom status has significant — and generally positive — implications concerning income, capital gains and inheritance (estate) tax for assets held outside the UK. The remittance basis allows a non-dom to pay tax only on income or gains earned outside the UK that is remitted to the UK. After seven consecutive years, a remittance basis charge applies. This charge is currently 30,000 pounds per annum, rising to 60,000 pounds after 12 years.
After 15 years, an individual is considered UK domiciled and is taxed on their worldwide income and gains. Furthermore, inheritance tax (currently 40 percent) applies to worldwide assets. (During non-dom status, inheritance tax applies only to UK assets, including residential property.)
The years mentioned above assume consecutive periods of tax residency, as these rules also capture intermittent periods within longer timescales. For example, the deemed domiciled rules apply to any 15 years of residency out of the last 20.
Suitable planning with tax and legal advisers — ideally before arrival — will ensure structuring of non-UK assets in an efficient manner, which may include discretionary trusts (known as “excluded property trusts” in this context) and/or family investment companies. Planning will not only assist in succession planning, but will create a clear demarcation of non-UK assets held before arrival in the UK. Typically, these assets will remain outside the scope of inheritance tax even after an individual has achieved deemed-domiciled status.
The timing of arrival in the UK is an important consideration. The tax year starts on 6 April, and it is crucial to analyse the effect of split-year treatment by tax authorities. In certain circumstances, UK tax residency can begin after an individual arrives in the country, and is not retroactive for the full tax year, which allows for effective tax planning.
UK taxation is, in the end, complex. Those considering a move to the UK should seek advice as early as possible in the planning process to avoid pitfalls and ensure their tax affairs are robust and structured in an optimal manner.
Education and property
For many families with children, the choice of school will dictate where they live in the UK. Consultants can assess the most suitable schools based on age, family educational goals, institutional reputation and other factors. They can also guide parents through the complicated, often fraught application process. The academic year in the UK starts in September, with places allocated by the previous February at the latest, so advance planning is essential.
When a family in this situation has decided on a school or schools — or at least has a shortlist — they can turn their focus to the family home. Once again, obtaining authoritative local advice in this area can help buyers understand the attractions and drawbacks of various areas, especially in a vast, densely populated city like London. Buying agents have experience in the market and charge a fee for finding and negotiating a purchase. Sellers with larger properties in more desirable areas often do not advertise publicly, and buyers can only access such properties through agents. Finally, mortgage finance brokers can obtain the most attractive financing deals for purchasing a property.
Banking and investments
Many entrepreneurs and investors have existing relationships with international banks and can use those connections to open UK bank accounts and manage investment portfolios. If this is not the case, you may need guidance and introductions to address this important, often overlooked aspect of moving to the UK.
Be aware that if you are participating in the Tier 1 (Investor) visa scheme, a UK-based bank or wealth management firm must manage your funds for a specified period and make certain declarations for the extension of the visa and final application for ILR.
Setting up a business or family office
The UK is currently eighth among 190 economies in the World Bank’s Ease of Doing Business rankings. Although incorporation and government-agency registration processes are relatively simple, ongoing compliance requires the board of directors to track and adhere to the UK’s evolving laws, regulations and filing requirements.
Many services related to establishing and maintaining a UK business can be outsourced with minimal investment, especially in the initial stages. These include accounting and payroll, along with advice related to HR and commercial legal compliance. As the business grows, these services can be moved in-house, while continuing to engage external support where necessary. We find that outsourcing services is beneficial when an entrepreneur wants to set up in a new and unfamiliar country, and when a family wants to move to a new country.
Outsourcing can also be used to set up family offices for the purposes of investment, administration or both. If an office is set up to provide investment management services for family funds, even internal funds, the activities may require regulatory authorisation. Families in this situation should seek advice from a law firm during the planning stages. Advice should include information and recommendations on structuring options, and, if applicable, options related to co-investments with other parties through special purpose vehicles (SPVs).
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