Immigration and taxes are key to understanding whether a move to the UK is viable, or indeed even possible. Immigration and tax rules change from time to time, sometimes as a direct result of the Government trying to attract or discourage certain immigration and others as a consequence of wider financial or political decisions.
This article is a joint article written by Alexei Zuyev, an immigration specialist at DMH Stallard and Adam Bonell, tax partner at HW Fisher. It seeks to highlight some of the key considerations in the current climate.
The end of free movement that followed Brexit, along with the closure of the Investor and Entrepreneur visa routes, has made it more challenging to immigrate to the UK. Additionally, political and economic pressures have also resulted in changes to the tax system which have, to some extent, limited the tax incentives that apply to foreign nationals. Nevertheless, the UK still ranks highly as a desired destination, and many foreigners are seeking options to settle here with their families. This is hardly surprising, given the UK’s convenient geographical location for international business, its access to world-class education for their children and robust tax and legal systems.
The ‘chicken’ or the ‘egg’? Once a decision in principle has been made to move to the UK then the individual needs to start thinking about the immigration and tax, but in what order! The answer will vary from family to family however the starting point is usually to determine your ability to live and work in the UK.
Lets start with the ’chicken’ by summarising the available immigration routes to the UK, discuss key requirements, and consider the interrelationship between residence rules in the taxation context, as well as the residence requirements for Indefinite Leave to Remain (ILR) and citizenship.
There are several immigration routes that can be utilized to come to the UK on a temporary basis, such as Youth Mobility (available for citizens of Commonwealth countries), High Potential Individual (limited to 3 years), Expansion Worker (a long-winded route to a Skilled Worker visa), Global Business Mobility, Student, among others, however, none of these routes lead to settlement in the UK. In this article we will mainly focus on visas that directly lead to settlement in the UK but will also cover the options for those who are being transferred to the UK for less than 24 months as there some attractive tax incentives.
In the absence of the Investor and Entrepreneur routes, the choice for those looking to relocate to the UK permanently typically comes down to the following categories:
Turning now to the ‘egg’. The key UK tax matters relevant to non-UK nationals broadly depends on their residence and domicile position.
Although there are several different factors which determine whether someone is resident in the UK in a particular year ended 5 April, the number of days spent in the UK in the tax year is the primary factor. Individuals spending less than 16 days will be not resident while those spending greater than 183 days will always be resident. Between these two extremes residency depends on the number of days spent in the UK combined with other factors such as historic residency, available accommodation, where other family members reside and employment.
In general, a resident is liable to UK tax on their worldwide income while a non-resident will only be subject to tax on their UK source of income. The exception to this general rule is where a UK resident individual is not domiciled in the UK and claims the “Remittance Basis of Taxation”.
Broadly, a person is domiciled in the country which they consider to be their permanent homeland. Every individual will have a domicile of origin at birth, normally their father’s domicile, and there is a general presumption against a change of domicile. Notwithstanding it is possible for an individual to acquire what is known as a domicile of ‘choice’ by demonstrating an intention to remain in the UK.
As such, an individual who is not domiciled in the UK who comes to the UK with an intention to return to their home country and retains that intention, is unlikely to acquire a UK domicile.
A UK resident who is not domiciled in the UK can elect to be taxed on a favourable basis, known as the Remittance Basis of taxation. Essentially the remittance basis allows the individual to exclude from UK taxation certain sources of foreign income and gains provided those monies are not remitted (brough in or otherwise enjoyed) to the UK. For an individual with income over GBP 100k per annum there is no cost for claiming the remittance basis. However after 7 years of residency there is an annual cost, known as a ‘Remittance Basis Charge’, of £30k, increasing to £60k after 12 years of residency. After 15 years of residency an individual will be considered deemed domiciled – such they are liable to UK taxes on worldwide income and gains, furthermore their assets are liable to UK Inheritance Tax.
Skilled Worker Visa
This category is aimed at foreign workers who want to come to the UK to work with a view to staying in the UK permanently. To apply for a visa as a Skilled Worker, there usually needs to be a UK company with a sponsor license from the Home Office. Applicants are required to have English language skills at level B1 or above and are usually required to be paid no less than £26,200 per year. The exact salary requirement must be calculated individually for each job based on weekly hours, skill level, and the applicant’s age. This route is often utilized by regular workers as well as senior employees of international companies, members of the C-Suite, and those who can establish a genuine business in the UK, including high net worth migrants.
Skilled Workers can bring their spouses and children under 18 to the UK with them, and after 5 years of continuous residence on this visa, they can all obtain Indefinite Leave to Remain, followed by the option to apply for British citizenship after one more year of residence.
This visa is offered to exceptionally talented individuals in IT, science, and the arts. Applicants must be endorsed by an independent panel of experts designated by the Home Office before they can apply for a visa. Successful applicants can reach Indefinite Leave to Remain in as little as 3 years of continuous residence in the UK, depending on the criteria they meet as part of their endorsement application. Those who do not qualify under the 3-year route may get endorsed on a 5-year route to settlement if they can demonstrate exceptional promise.
Spouses and children under 18 can join the main applicant in the UK but are only eligible for Indefinite Leave to Remain after 5 years of continuous residence, even if the main applicant is eligible after 3 years. Citizenship is available to the main applicant and their accompanying family members upon completing at least 5 years of residence in the UK, including at least one year with Indefinite Leave to Remain.
This fairly new route is for applicants with a viable business idea that is different from anything else on the market and funds from a legitimate source to invest in developing this business in the UK. Similar to the Global Talent route, the applicant must receive an endorsement from a designated body before they can apply for their visa. Additionally, those applying for an Innovator Founder visa must meet the English language requirement at level B2. Successful applicants will be placed on a 3-year route to settlement, with their spouses and children under 18 being able to settle after 5 years of continuous residence. Citizenship is also available upon completing at least 5 years of residence in the UK, including at least one year with Indefinite Leave to Remain.
Those traveling to the UK under the aforementioned visa’s will typically be considered resident from the date of arrival. Generally, such and individual will be taxed on the worldwide income and gains however, where they are not domicile in the UK they can potentially avoid UK taxes on certain sources of foreign income and gains which are kept outside the UK.
Individuals on this visa will usually be considered not domiciled in the UK and can also take advantage of a relief known as ‘Overseas Workday Relief’ (OWR). In essence, with some planning, OWR allows an employee to exclude from UK taxation any earnings of employment which relate to duties performed outside the UK.
Although working outside the UK may present significant tax savings for the employee those spending material time working outside the UK, who are hoping to qualify for ILR or citizenship, will need to carefully consider their travel patterns.
Spouse of a Settled Person
This route is available to partners (in some cases unmarried partners) of British citizens or those with Indefinite Leave to Remain. Applicants must meet the financial requirements as well as the English language requirement. They can come to the UK on a 5-year route to settlement, with eligibility to apply for citizenship as soon as they receive Indefinite Leave to Remain. Children from the applicant’s previous relationships may be able to apply as well.
The tax position of a spouse is independent from the applicant, for example, they can choose whether to claim the remittance basis of taxation or not. An important and helpful factor is that an accompanying spouse may be able to ‘split’ their tax year or arrival or departure to avoid triggering residency prior to arrival.
Transfer of assets between spouses may also be useful in terms of minimising exposure to UK taxes
This is an interesting option available to Commonwealth citizens whose grandparent was born in the UK. The majority of those applying under this route seem to come from Australia, New Zealand, Canada, and South Africa. An Ancestry visa is granted for 5 years as long as the applicant can show that they either have a job offer in the UK or have a realistic chance of finding a job in the UK. Spouses and children under 18 can join the main applicant. Indefinite Leave to Remain is available after 5 years of continuous residence, and an application for citizenship can be made after 12 months of living in the UK with Indefinite Leave to Remain.
Residence Requirement: Indefinite Leave to Remain and British Citizenship
As detailed in the preceding sections, migrants must usually live in the UK for 3 or 5 years, depending on the requirements of their individual route, before they can apply for Indefinite Leave to Remain. Their absences from the UK must not exceed 180 days in any rolling 12-month period. Only whole days of absence are included in the calculation, meaning the days on which the person arrived in the UK and the days on which they left the UK are not counted as absences. A useful way to check if absences are below the threshold is to count 12 months backward from each return date to the UK. As long as the absences during each respective 12-month period do not exceed 180 days, the requirement will be satisfied. Accompanying children are not subject to the absences limit.
Qualifying for ILR does not guarantee eligibility to apply for citizenship, as the residence requirements for citizenship applications are much stricter. Spouses of British citizens must show that their absences over a 3-year period immediately before their citizenship application did not exceed 270 days in total and were under 90 days in the final 12 months before the application. All other applicants must show that they did not spend more than 450 days outside of the UK over the 5-year period immediately before the application, including no more than 90 days in the final 12 months. The Home Office has a complicated policy that allows for longer periods of absence to be disregarded, sometimes in exchange for a longer overall residence period but these cases must be assessed individually. It is therefore advisable to seek legal advice where absences exceed the above limits. Children under the age of 18 applying for citizenship with their parents are not subject to these limits.
A common misconception is that acquiring British Citizenship will make the individual domiciled in the UK. Although this step can be seen as a strengthen an individual’s tie to the UK, and arguably increase their likelihood of acquiring what is known as a domicile of choice, the act of acquiring British Citizenship itself should not be considered an act of acquiring UK domicile. Instead, it is important to consider all relevant facts and importantly the individuals ties to their current country of domicile. Where the act of acquiring British Citizenship requires renunciation of the individuals citizenship overseas then particular care is required in understanding how that could impact their domicile position.
As noted above once an individual has been UK tax resident for 15 out of the preceding 20 years they will be considered deemed domicile.
An individual who is actually or deemed domicile in the UK will generally be subject to taxes on their worldwide income and gains. In addition, those individuals are likely to be subject to UK inheritance tax on worldwide assets.
Employees who are seconded to the UK by their employers for a temporary purposes (usually considered to be less than 24 months) can qualify for tax relief on various cost of living expenses including rent, utility cost, subsistence and other assignment expenses. This can result in a material reduction on the UK taxes.
There are several immigration routes that can be utilised for this purpose and the choice will usually depend on such factors as the applicant’s nationality, age, nature of the UK role, etc.
Before considering visas that require sponsorship, it is always a good idea to check if the worker is eligible under any of the non-sponsored routes mentioned earlier, e.g. Ancestry visa. The other good alternatives include the following options.
Youth Mobility Scheme visa
It is available to nationals of Commonwealth countries aged 30 or under (35 for nationals of New Zealand). This visa is usually granted for 2 years and comes with the right to work in the UK so can be a convenient non-sponsored route for someone who is being transferred to the UK for 24 months or less. Importantly, this visa can only be granted once.
High Potential Individual visa
This visa is for those who graduated from one of the world’s top universities no more than 5 years before applying for this visa. It is normally granted for a period of 2 years and allows the holder to work in the UK. It is non-extendable.
Government Authorised Exchange (‘GAE’) visa
This is a sponsored route but in many cases the UK employer will not be required to have a sponsor licence under this category. There are multiple GAE schemes in existence that offer sponsorship. Individuals can be sponsored under one of these schemes to undertake employment with their company in the UK without being sponsored directly by their employer.
The length of sponsorship is limited to 12 months or 24 months depending on the terms of a particular scheme.
The most common use of this route is to enable recent graduates to undertake an internship with a UK employer. The route is also used by overseas lawyers and academics to facilitate secondments to the UK.
Sponsored routes for secondments
Where none of the above options fit the bill, the employer can consider one of the sponsored work visa options. The first one to consider is the Skilled Worker visa mentioned earlier. While this visa does lead to settlement in the UK, there is no minimum requirement for the length of sponsorship so this route will be a good fit for workers who are being seconded to the UK, provided that they can meet the English language requirement.
For those who cannot meet the English language requirement automatically (e.g. because they are not a national of a majority English speaking country such as the USA or Australia) a Senior/Specialist worker visa under the Global Business Mobility category could be just the right thing as it has no English language requirement. However, the employer must be licensed by the Home Office under this route and the applicant must be an existing employee of the UK company’s overseas linked entity. The job itself must be at the graduate level or above.
Importantly, the time seent on this visa will not count towards residence period required for settlement so the route is only good for those secondees that will definitely be returning overseas at the end of their secondment.