The UK’s immigration regime and tax policies, that continue to be in place in a post-Brexit world, are designed to attract the brightest and the best of the business world and they appear to be working. In 2019, before the Covid pandemic stopped international travel, a record 28,734 businesses registered as sponsors allowing them to recruit overseas nationals.
But, says Tom Boniface, when businesses bring senior executives into the country, careful thought and planning is needed if those individuals are to avoid paying unnecessary tax. And that planning should start before the individual steps off the plane.
Firstly, a business and the relocating executive will need to consider the remuneration package. Whilst an employee in the UK will have to pay PAYE and National Insurance contributions, the benefits and relocation package that accompanies senior appointments will often have considerable tax implications.
It is not uncommon for the relocation and benefits package to cover the
cost of renting a home, school fees, a car or transport on top of the salary paid. How these are structured will have tax implications for the individual.
In certain jurisdictions such ‘benefits’ may not be considered part of the employee’s taxable remuneration.However, in the UK they generally are, unless certain conditions are met. This means that where the benefits package includes the above, the employer should not fall foul of the UK tax regime and report these correctly.
If the package requires the individual to pay for their own accommodation, will they rent or buy? If they choose to buy, how will they secure a mortgage if it is needed? Arriving execs often fail to realise that it is more tax efficient to bring cash into the country before they arrive than when they already have feet on the ground.
Individuals coming to live in the UK may be able to benefit from the favourable remittance basis regime. The provisions within this regime can protect an individual’s non-UK situated wealth from lifetimes taxes during the early years of their arrival in the UK. However, they are complex and require careful planning to ensure maximum tax efficiency.
Secondly, the length of stay in the UK will also play a significant role in the amount of tax that individual will pay, as too will any periods of work-related travel.
The UK government recognises that many inbound executive placements are for a limited time period and, as such, offer several valuable tax reliefs.
For work periods of less than 24 months, senior execs can claim Detached Duty Relief (DDR). The relief allows, for example, the cost of accommodation to be offset against income tax. This is often overlooked and particularly beneficial if living in London where rents are often high.
The claim must be made on an individual’s self-assessment tax return. They are able to offset the costs of accommodation and work-related travel and subsistence against their income. This will reduce their exposure to UK tax.
When a senior executive is based in the UK but spends time travelling for work, they should consider Overseas Workday Relief that allows an individual to shield salary earned overseas from UK tax authorities.
Pension contributions will also need to be considered, particularly given the UK’s autoenrollment regime. Those working for a short period of time will often choose to opt out of the regime given the challenges and tax implications of accessing that pension when outside of the UK.
Thirdly, the individual will need to secure the right kind of visa to be eligible to work in the UK, usually a sponsored visa. For business owners, an entrepreneurs’ visa may be the most appropriate route. In most instances, employers are likely to make visa arrangements on behalf of their staff.
If the senior executive on placement to the UK decides to return home after a few years, there is likely to be few if any ongoing tax implications.
However, if the individual chooses to stay for longer periods of time or perhaps wishes to settle permanently in the UK, there are likely to be considerable tax implications, particularly inheritance tax.
HMRC considers an individual to gain a deemed-domicile for all tax purposes after 15 years, but the rules are not hard and fast. It is all too easy for an individual choosing to stay in the UK see their worldwide assets fall into the UK inheritance net without planning and consideration.
It is recommended that senior executives working in the UK for any period of time take independent and specialist advice on their tax position. Whilst a business and its HR team will look to take much the stress of a move off the shoulders of its staff, they will not necessarily fully understand the tax impact of their actions. An unexpected and unnecessary tax bill.
Tom Boniface, Private Client Tax Senior Manager at Kreston Reeves.
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