Taxation of international executives
The extent of the liability to U.K. tax on earnings depends upon the individual’s residence status in the United Kingdom. Prior to 6 April 2013, residence was based on case law and depended mainly on the length of time an individual spent (or intended to spend) in the United Kingdom, although it could also be affected by other factors such as whether or not he/she purchased accommodation in the United Kingdom. However, as these were deemed to be “uncertain and complicated residence rules”, the U.K. Government introduced a Statutory Residence Test (“SRT”) with effect from 6 April 2013.
The domicile status of the individual can also affect the tax liability and this is particularly relevant as many cross border inbound assignees are likely to be foreign domiciliaries (“non-doms”).
The taxation of non-doms was due to be amended from 6 April 2017. However, due to the timing of the General Election called shortly after Budget 2017, there was insufficient parliamentary time remaining for the changes to be enacted into law. Consequently, at the time of writing, the taxation of non-doms remains broadly as it was in prior years. Whether the proposed changes will be brought forward again after the General Election depends on who forms the next Government.
The incumbent Government has said they will re-introduce the rules should they be re-elected; it remains unclear whether the rules would be backdated to 6 April 2017 in this scenario.
The main proposed change was the introduction of the concept of “deemed domicile” for Income Tax and CGT and the alignment of the IHT concept of deemed domicile with the new Income Tax/CGT definition. Under the proposed changes, a non-dom would become deemed domiciled in the U.K. once they have been resident in the U.K for 15 out of the previous 20 tax years. Once deemed domiciled, the individual would no longer be able to claim the remittance basis of taxation and would be liable to U.K. IHT on their worldwide assets.
The anticipated impact on short-term assignments would be expected to be minimal albeit the impact on certain classes of assignee (those who have spent many years in the UK and those born in the UK with a U.K. domicile of origin) would be greater.
The article that follows is based on the law as it stands at the time of writing (May 2017). If you have concerns about the how the proposed changes could impact your tax position should they be re-introduced, you should speak to your advisor.
The maximum U.K. income tax rate for the tax year ending April 5, 2017 is 45%.
The U.K. tax authority is known as Her Majesty’s Revenue and Customs (“HMRC”).
The official currency of the U.K. is the pound sterling, often referred to just as sterling or as the British pound (“GBP”). The U.K. has a decimal currency system with 100p (pence) making up GBP 1 (one pound).
Herein, the host country refers to the country to which the employee is assigned. The home country refers to the country where the assignee lives when he/she is not on assignment.
© 2017 KPMG LLP, a United Kingdom legal liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.