Attracting funding to the UK
- Olooja E-Hub
- Jul 12, 2023
- 3 min read
If you bring non-UK monies or property (e.g. artwork, wine, cars, etc) to the UK, the remittance tax charge will depend on the nature of the funds remitted, which can broadly be split into three categories; income, capital gains and clean capital (monies arising before you acquired UK residence or from non-taxable sources, e.g. inherited funds).
This may sound relatively simple, but there are complex rules for matching remittances from mixed accounts (those containing more than one type of monies e.g. income and clean capital), which are often unfavourable.
For this reason, operating bank account segregation is recommended and mixed accounts are best avoided. Care needs to be taken to prevent any inadvertent remittances of “tainted” (i.e. taxable) funds leading to unexpected UK tax liabilities.
How does the remittance basis change with long-term UK residency?
As an individual claiming the remittance basis, you will be subject to the following annual Remittance Basis Charge (RBC) based on your longevity of UK residence:
If you’ve been UK resident for seven of the previous nine tax years, an RBC of £30,000 per annum applies.
If you’ve been resident for at least 12 of the previous 14 tax years, the RBC rises to £60,000 per annum.
Once you’ve been UK resident for 15 out of the previous 20 tax years, you become deemed UK domiciled for UK tax purposes and can no longer make a claim for the remittance basis.
Given the level of the RBC for longer term residents and the inability to claim the remittance basis at all under the 15 out of 20 year rule, planning and care needs be taken to ensure you achieve the best outcome.
Business Investment Relief (BIR)
In order to encourage investment in the UK, there is a specific exemption from a remittance tax charge where the conditions for BIR are met and a valid claim made. This could allow you to use some or all of your tainted funds to make UK investments without incurring remittance tax charges on your foreign income/gains.
There’s no total investment limit for BIR, but there are several conditions that both you and the company you are investing in would need to satisfy.
A qualifying BIR investment must be in a private limited company and within 45 days that the funds are brought to the UK. Generally, the company needs to undertake a commercial trade, or be preparing to do so, but BIR can also apply to certain holding or hybrid companies. The investment can be in the form of share capital or a loan.
There is an optional BIR advance assurance facility provided by HMRC, to which they are expected to respond within 28 days. So long as the assurance application is completed accurately, this will provide a good indication about HMRC’s view of the availability of BIR, although it’s not possible to obtain certainty that it will not challenge a claim that is included on your tax return.
Potential chargeable events – clawing back BIR
‘Potentially chargeable events’ are instances that will trigger a remittance tax charge unless appropriate mitigation steps are taken.
Most commonly, a potentially chargeable event would occur if you disposed of all or part of your investment. In this case, you would have a 45 day grace period to take the amount originally invested offshore or make another qualifying BIR investment in order to prevent a remittance tax charge.
For certain potentially chargeable events (e.g. the company ceasing to trade), the grace period is extended and HMRC have further discretionary powers in exceptional circumstances.
What should you do?
In view of potential further changes to the taxation of RNDs, now is a good time to conduct a review of your UK tax affairs in order to identify any available opportunities remaining under the existing rules.
Get in touch
For advice on your domicile status for UK tax purposes, whether the remittance basis is available and beneficial to you, or guidance on how best to use your offshore funds and claim Business Investment Relief, please fill in the form and one of our experts will be in touch.
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