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Au Revoir Hollande: The UK Welcomes French High Net Worths

The arrival of François Hollande in the Elysee Palace recently is expected to trigger the departure from France of a number of French "high net worths" seeking refuge from the anticipated increase in French tax. London already has a large and well-established French community and offers an attractive destination for French nationals looking to relocate.

For those considering a move to the UK, the main issues are likely to be (a) understanding how their worldwide income and gains will be treated under UK rules (b) organising employment in the UK and (c) the purchase and ownership of a UK property.

Worldwide Income and Gains

If an individual is not coming to the UK permanently and may at some stage return to France, he will be non-UK domiciled (even though UK resident) and there are certain tax advantages to this.

For a UK resident, non-UK domiciled person UK source income and gains will always be taxable in the UK. For foreign income and gains, however, the remittance basis can be claimed to reduce exposure to UK tax. Under the remittance basis, foreign income and gains are only taxed in the UK if they are remitted (i.e. "brought in") to the UK from abroad.

Those who have been resident in the UK for more than 7 years will need to pay an annual remittance basis charge of £30,000 (which rises to £50,000 once they have been in the UK for 14 years), if they wish to continue to claim the remittance basis charge. There is no remittance basis charge for those who have been in the UK for less than 7 years.

Employment

Earnings from a UK employer will be taxed as income at the rates of 20%, 40% and 50%. The top rate of 50%, which is being reduced to 45% as from 6 April next year, applies to income above £150,000.

However, where a UK resident, non-UK domiciled person undertakes duties in the UK and abroad, his overseas earnings can be taxed on the remittance basis if his overseas duties are distinguishable and separate from his UK employment and there are two separate employment contracts in place. Alternatively, if a person is not "ordinarily resident" in the UK it is possible to keep non-UK earnings out of the UK tax net, even in the absence of split contracts and even if the employer is UK based.

Buying a home in the UK

As a result of this year's budget the purchase of a UK residential property worth over £2million will attract a 7% SDLT charge. The rates of SDLT for properties below the £2million mark range from 1 to 5%. If the property is purchased through a "non-natural person" (such as a company or a partnership with a corporate partner), the SDLT rate rises to 15%.

A gain made on a sale of property by a UK resident owner will trigger capital gains tax (CGT) at 18% or 28%, unless the property is the owner's principal home, in which case the gain is not chargeable. The UK Government also plans to introduce a new CGT charge on gains made by non-UK companies on disposals of UK residential property, thereby bringing non-resident entities within the UK CGT net for the first time.

In addition, the Government is consulting this summer on a proposal to introduce (from April next year) an annual "mansion tax" on residential properties which are held by "non-natural persons" and are worth over £2million.

If owned personally, the value of the UK property will also be within the UK inheritance tax (IHT) net, regardless of the owner's domicile. If an individual dies whilst owning UK property, the value of the property above a tax-free threshold of £325,000 will be taxed at 40%. A full exemption from IHT applies where assets pass from one spouse to another (although this exemption is limited to £55,000 where assets pass from a UK domiciled spouse to a non-domiciled spouse).

Key Points:

  • Plan ahead - seek specialist tax advice in advance of any move to ensure that proper planning is in place before arriving in the UK;
  • Consider making an English Will to cover English real estate on death;
  • Consider whether you will claim the remittance basis and plan accordingly (in terms of organising bank accounts and ring-fencing clean capital);
  • Ensure that any UK tax planning dovetails with the tax regime in your home country and don't forget the potential application of double taxation treaties.

This article first appeared in Money Observer on 19th June 2012.

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