Tax Planning Tips for Americans coming to live in the UK

The UK offers an excellent tax regime for individuals coming from the US to the UK. Below are some useful tips to minimise your UK tax:

Open new bank accounts

Open two new accounts (a "capital" account and an "income" account) with an overseas bank, ideally in a tax year before becoming UK resident. This could be a US bank, or one in the Channel islands or a Caribbean country with a favourable tax regime. Both can be interest-bearing, but interest arising on the capital account must be paid directly into the income account
Cash to meet your needs should be transeferred to the capital account before arrival in the UK. The funds should be in Sterling to avoid realising taxable gains on the conversion of the foreign currency
Even once UK resident, a non-UK domiciliary will be able to bring money out of the capital account into the UK without incurring any UK tax liability
The funds in the income account should not be remitted to the UK once resident, but can be spent while outside the UK without any UK tax charge, provided that a non-UK domicile is retained

Consider your domicile

Decide whether you intend to settle permanently in the UK, thereby acquiring a UK domicile of choice. It is essential that US advice is taken regarding expatriation to ensure "dovetailing" with the UK rules on domicile
A non-UK domicile is extremely advantageous for UK tax planning. Ideally, you should maintain as many links as possible with the US, including a home there and your US citizenship. You should have a Will governed by the law of your State, including a domicile statement in any UK Will (for example over UK property) and perhaps sign a separate statement relating to your UK tax affairs
The Inland Revenue may issue a specific domicile question (known as DOM1) to complete and it is essential that professional advice is taken on this

Understand the implications of purchasing a UK property

Purchasing a UK property could affect your UK residency status
Stamp duty land tax will be payable on the purchase, at up to 4% depending on the value of the property purchased
The taxable value of a UK property for Inheritance Tax purposes can be reduced by an offshore mortgage
We do not recommend a person owning a property through a company, unless these arrangements are appropriate for their laws at home. UK legislation taxes employees on the use of the company's assets, and the Inland Revenue has indicated that from April 2004 they will view (and tax) any person occupying a property in this way as a shadow director and so a charge to income tax will arise under the benefits-in-kind legislation. The only way to avoid this charge is for the occupier to pay a full market rent for the use of the house, but this may cost more than the income tax liability. There may be corporation tax issues on the receipt of rents by the company. Even if the company is offshore, if the occupier is involved in the decision-making process regarding the property, the company may be viewed as being "managed and controlled" in the UK and a liability to UK corporation tax on its income and gains as they arise

Arrange cheques/credit cards with UK banks

Credit cards can be settled either from an offshore capital account or from any UK account
A taxable remittance could arise if, for example, goods were paid for in the UK with a cheque drawn on a foreign bank account containing income/gains or if paid by credit card and the bill subsequently settled by funds representing income or gains realised abroad Review your investments In due course, your salary or cash may be invested. If the investments are in UK companies (even if through a nominee agreement), you will be subject to UK tax on gains and income. If assets remain offshore, the non-UK domiciled holder will only be taxed to the extent gains or income are remitted to the UK The US tax rate for gains from non-business assets is attractive: we recommend that such assets are not held in the UK to minimise the UK tax exposure

Consider an English Will

If you purchase a UK property, an English Will is recommended. UK Probate Registries may not recognise a foreign Will, or it may not include appropriate powers to administer and manage the property on untimely death
Otherwise a UK Will is not essential unless there are significant other assets located in the UK
Any UK Will should contain a statement regarding the domicile of the testator

Set up offshore settlements

If you plan to stay for a significant period of time, an offshore offshore settlement may be useful to hold funds and/or any UK house. This can confer ongoing tax benefits on non-UK domicilaries such as protection from future inheritance tax charges on some of the underlying assets and tax-free remittancs of capital gains into the UK for non-domiciliaries

Ensure that your UK tax planning "dovetails" with US regimes

Consider US tax issues in depth before any departure from the US, and on an ongoing basis, to ensure that the two regimes dovetail in the most efficient manner. There are treaties that minimise double taxation
Each person's circumstances are different so it is important to seek bespoke advice in the US and the UK, ideally well in advance of the proposed date of arrival in the UK

July 2006

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