Expert Tax & Family Office Solutions for High-Net-Worth Entrepreneurs

Background UK Chancellor Jeremy Hunt announced significant changes to the UK's taxation regime in the Spring 2024 budget. Those changes can broadly be summarised as follows: the abolition of the remittance basis for income tax and capital gains tax for non-UK domiciled individuals; and possible changes to inheritance tax (IHT) based on residence, not domicile. It is the second of these points that will likely to have a significant impact on long-term British expats and their future tax liabilities. Key Tax Changes Income and gains From 6 April 2025, new UK residents will only be exempt from UK tax on "foreign income or gains" during their first four years of UK residence. After that, they will be taxed on their worldwide income and capital gains. Transitional arrangements are being made for existing UK residents who are not UK domiciled, but they will also be taxed on their worldwide income sooner than before. Inheritance Tax (“IHT”) Another significant change involves inheritance tax (IHT). Currently, IHT is based on domicile and is charged at 40% on the total value of the deceased's estate, after exemptions. However, the Chancellor indicated that the government is considering making IHT liability dependent on residence rather than domicile. This change could lead to UK residents of 10 years or more paying IHT on their worldwide estates. This shift in policy may have profound implications for long-term UK expats. Potential Implications Foreign income and gains The proposed changes to the remittance basis for income tax and capital gains tax could have wide-ranging impacts on non-domiciled individuals. A one-dimensional view is that, if non-domiciled status is abolished, then it will lead to increased tax revenues. Indeed, the stated policy intention behind these changes is to increase tax revenue by GBP2 billion. However, this fails to take into account any behavioural shifts. The elephant in the room here is that many high-net-worth individuals, who are generally internationally mobile, might leave the UK or become non-UK tax residents to avoid increased taxation. It is therefore a high-wire act for the Government. IHT Regarding IHT changes, the shift from domicile-based to residence-based taxation may simplify the rules. At the moment, an expat remains exposed to UK IHT on their worldwide assets whilst they remain domiciled in the UK. Even where they have been expats for a long period of time, this can be a problem because: Domicile is sticky – it is difficult to acquire a domicile of choice elsewhere and can be precarious [LINK]; Clarity – HMRC will be reluctant to provide a view on this in many cases so one is planning with uncertainty As such, linking IHT is residency, a more objective link, is helpful. If one has been outside the UK for, say, 10 years then it is easy to ascertain the position (depending on the precise nature of the final rules!) I have hear it suggested that a potential Labour government could extend UK IHT to include anyone holding a British passport, complicating the process for expats seeking to reduce their UK IHT liability. However, I am not sure whether this has any real providence. Recommended Actions for British Expats General Given these uncertainties, long-term British expats should consider taking proactive steps to protect their assets and reduce their future tax liabilities. Due to the shifting tax tectonic plates at play here, there is no definitive answer. However, depending on their mindset and objectives, an expat might consider the following strategies: #1 Action Strategy #1a Obtain Opinion of Domicile Before making significant financial decisions, expats should obtain a legal opinion confirming that they have shed their UK "domicile of origin" and acquired a new "domicile of choice" in their current country of residence. This, from a practical perspective, involves demonstrating a long-term commitment to residing in the new country and forming an intent to stay indefinitely. #1b Transfer Wealth into Offshore Trusts Expats who have obtained legal opinions confirming their new domicile might then wish to consider transfer as much wealth as possible into offshore trusts before 6 April 2025. This approach is expected to be governed by the existing IHT regime based on domicile, providing a safeguard against future tax liabilities. One important consideration is that the Labour government has already announced plans [LINK] , contrary to the Government’s proposals, that they will make sure such a trust is within the scope of IHT. This provides a dilemma – do nothing and potentially suffer IHT on worldwide assets or incur costs which, in a worst case scenario, might be wasted. #3 "Wait and See" Approach Given the uncertainty and potential changes (tax and potential governments!), it is understandable that expats might want to adopt a “wait and see” approach. We have sympathies with this approach. However, it must be understood what is at stake. As stated above: doing nothing will ensure no professionalfees are wasted – but potentially suffer mean that one is exposed to IHT on worldwide assets; or potentially incur unnecessary costs which, in a worst case scenario, might be wasted on ineffective planning Conclusion These are difficult times for those internationally mobile people with a UK footprint – whether British expats or UK resident non-doms. The times are, as they say, ‘a changin’. It might well be that your plans have to be ‘a changin’ too. For more advice on these matters, then please get in touch.

Some time ago I wrote a rather bilious article after viewing a video post by a ‘tax influencer’ (should that be effluencer?) shilling the tax benefits of Dubai (UAE). In short, move here and pay no tax on your personal and business income. It wasn’t a great take. However, it is also not a unique one. That’s not to say I don’t like Dubai or the UAE, of course. I live here. I love the sun. I feel I should have been born in a different company. A unique form of body dysmorphia perhaps? Further, and more seriously, the UAE is bursting with business opportunities and the ambition of the region is as remarkable as it is refreshing. As such, the attractions for setting up one’s business and life over there are not lost on me. But does our fresh-faced influencer have a point or not? Getting serious Of course, historically, the UAE has had an exceedingly light touch (we’re talking helium, here) to taxation. However, as we will see, this recently shifted for corporate taxes and did so in most of the gulf states for VAT a number of years ago. So, can we move seamlessly, fiscally speaking, from the UK to the UAE? Things tend to relatively simple where one is upping sticks and moving to the UAE.  Say, breaking UK residency and taking up residency in the UAE. But what about where the entrepreneur is not able, or willing, to leave the UK from a residence perspective? Well, this is where the position is trickier. In that case, one cannot simply remain in the UK and offshore one’s activities to a new company in the UAE without some substantial tax issues. Depending on the circumstances – these may or may not be manageable. However, our influencer, who thinks the UK’s Transfer of Assets Abroad (TAA) provisions are simply a cryptic crossword description of suitcase, has not missed a beat. Corporate taxes I will start with corporate taxes, as this is perhaps where – from the UAE perspective – the biggest change has been. UK corporation tax Assume that our intrepid entrepreneur has: set up a new company in the UAE (Dubai); and has appointed directors in that jurisdiction such that it is ‘managed and controlled’ from the UAE Here, the company should not be resident for tax purposes in the UK. However, a UAE company could still have a UK taxable presence where it has a UK trade or where it has a UK Permanent Establishment. (“PE”) The Company might have a UK PE where is has a UK sales office, for example. It should be noted that the fact that the Company has UK customers is largely irrelevant. However, clearly, at the other end of the spectrum, where the client base is almost wholly non-UK, then the chances of creating taxable touch points in the UK is less likely. Further, for corporation tax matters, unless it can be argued he or she is managing and controlling the company from the UK, the location of the individual shareholder does not really matter. However, if the shareholder remains UK resident, then this will cause issue with a key set of anti-avoidance provisions, the aforementioned TAA provisions, that we will discuss this below. UAE corporate tax Up until 1 June 2023, the UAE levied no tax on the direct profits of individuals or companies. However, following the enactment of a new corporate income tax law, taxable persons are likely to be subject to tax on business profits. As one would expect for a ‘corporate income tax’ UAE companies and other non-natural persons (referred to simply as Companies for the rest of this article) that are incorporated or effectively managed and controlled in the UAE are potentially subject to the tax/ In addition, Non-resident Companies that have a Permanent Establishment (think branch) in the UAE are within its scope. Perhaps more surprisingly is that natural persons (including individuals) who conduct a Business or Business Activity in the UAE are also within its scope. Companies established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons”. However, there is an all-important qualification around so-called Qualifying Free Zone Persons. These persons pay 0% on their Qualifying Income, which is a narrowly defined category.. Broadly, the exposure to UAE corporate tax is as follows: Resident Persons: taxable on income derived from both domestic and foreign sources Non-Resident Persons: taxed only on income derived from sources within the UAE The headline rate of corporate tax is 9%, which applies to Taxable Income exceeding AED 375,000. Below this threshold, the rate of tax is 0% One important feature of the regime is a relief called Small Business Relief. This valuable relief might apply where revenue is no more than AED 3m. Where an election is made for SBR then the Taxable Person is deemed to have no income at all – and therefore has no tax to pay. Not too shabby. Personal taxes Perhaps somewhat counter-intuitively, it can be the personal tax rules, and the personal tax anti-avoidance rules in particular, that make or break such an exercise. Leaving the UK (for UAE?) As stated above, whether our entrepreneurial friend is leaving the UK or not will be the seminal question here. Of course, when I say ‘leaving the UK’, I mean becoming non-UK resident for tax purposes. I haven’t got the space to discuss the Statutory Residence Test here. However, here’s one we prepared earlier! [Draft and link] Where the shareholder in the new company is going to be non-UK resident, we do not have to worry about the anti-avoidance provisions listed below. In addition, if the individual is non-UK resident, then any dividends paid by the new UAE company will be free of UK tax. One needs to be mindful of the 5-year temporary non-residence rule here. However, if the profits of the Company arise after breaking UK residence, then this should not be an issue even if the individual returns within the 5 year window. The position is much more perilous where the individual remains in the UK, however… UK anti-avoidance If the shareholder remains UK resident, then we have to run the gauntlet of the TAA rules. These rules have been on the statute for many decades but are over-looked by those who think that ‘doing a Google’ is as easy as the press want us to think. These rules bite where, in the context of a company, assets are transferred to a non-UK company to avoid tax and they produce non-UK income. Under basic principles, the Company may escape corporation tax for the reasons set out above. However, the rules put an end to this relatively simple wheeze by allowing HMRC to essentially look through the entity and assess the individual shareholder on the profits. There are two relevant defences to these rules. Firstly, where the non-UK entity is established broadly for commercial purposes. Also, there is a statutory EU defence if the Company is resident in an EU member state (clearly not relevant for the UAE!) and, for obvious reasons (the B word), the standing of this defence is a little uncertain. Local personal taxes in the UAE? At present, there is no personal income tax in the UAE. Value added tax VAT was also introduced in the UAE relatively recently. The standard rate is 5%. Conclusion So, there we have it. As with any tax planning, it all boils down to the personal and commercial objectives of the individual. In fact, some might say it’s all in the ‘Tank fly boss walk jam nitty-gritty’. Something that is difficult to distil into a Tik Tok video. If you require further information on UK tax advice for expats or any other tax planning advice then please get in touch