The UK non-domiciles regime remains a relatively attractive option with UK non-domiciliaries (“non-doms”) continuing to have the opportunity to enjoy significant tax advantages for a period of up to 15 years.
Changes to UK Non-Dom Legislation
Major reforms regarding how non-UK domiciliaries are taxed were however introduced in April 2017.
As detailed in the Dixcart note: UK Tax Residence – Planning Opportunities, Case Studies and How to Get it Right, the rule is that individuals are now deemed domiciled in the UK if tax resident in the UK in 15 of the previous 20 tax years.
UK Tax Residence and how to “Reset” the Clock
Through appropriate planning, ceasing to be UK tax resident for 6 years can mean that individuals will lose their deemed domiciled status. Should they then wish to return to being UK tax resident, they will have reset the year count for the deemed domiciled test.
Additional details regarding the factors affecting UK resident and non-resident status can be found in the Dixcart Article: The UK Resident/Non-Resident Test.
Alternative Jurisdictions to Consider with an Opportunity to Maximise the Time Spent in the UK
If the decision is taken to cease to be UK tax resident, many individuals may wish to continue to spend time in the UK for personal or business reasons. Two jurisdictions to consider as an alternative residence that are very close to the UK are Guernsey and the Isle of Man.
The island of Guernsey is the second largest of the Channel Islands, which is situated in the English Channel. The Bailiwick of Guernsey comprises three separate islands: Guernsey, Alderney and Sark. Guernsey is the largest and most populated island in the Bailiwick and combines many of the reassuring elements of UK culture with the benefits of living abroad.
Guernsey is independent from the UK and has its own democratically elected Parliament which controls the island’s laws, budget and levels of taxation. As the island enjoys legislative and fiscal independence, it can respond quickly to the needs of business. In addition, the continuity achieved through the democratically elected parliament, (without political parties) helps deliver political and economic stability.
Potential to Maximise Time Spent in the UK
Dixcart can provide advice regarding how many days can be spent in the UK without being UK tax resident. The number of days vary depending on individual circumstances and individuals should take great care to remain within the maximum allowable number of days.
Flights from Guernsey enable individuals to be in London for 09.00am in the morning, to help maximise the amount of time that can legitimately be spent in the UK.
Criteria Required to Move to Guernsey?
The following individuals do not generally need permission from the Guernsey Border Agency to move to the Bailiwick of Guernsey:
- British Citizens.
- Other nationals of Member States of the European Economic Area and Switzerland.
- Other nationals who have permanent settlement (such as indefinite leave to enter or remain in the Bailiwick of Guernsey, United Kingdom, Bailiwick of Jersey or the Isle of Man) within the terms of the Immigration Act 1971.
An Individual who does not have an automatic right to live in Guernsey must fall within one of the categories below:
- Spouse/partner of a British Citizen, EEA national or settled person.
- Investor – requires a minimum of £1,000,000, of which a minimum of £750,000 must be invested in Guernsey.
- Person intending to establish a business in Guernsey.
- Writer, artist or composer.
Tax Efficient Jurisdiction
Guernsey is a leading international financial centre with a good reputation and an attractive tax regime:
- The general rate of tax payable by Guernsey companies is zero*.
- There is no capital gains tax, no inheritance tax, no value added tax and no withholding tax.
- Income tax is generally a flat rate of 20%.
* There are limited exceptions.
Tax Residence and a Significant Tax Advantage
- An individual who is resident, but not solely or principally resident, in Guernsey can elect to be taxed on Guernsey source income only, subject to a minimum charge of £40,000. In this instance, any additional income earned outside Guernsey will not be taxed in Guernsey.
Alternatively, an individual who is resident, but not solely or principally resident in Guernsey, can elect to be taxed on his or her worldwide income.
Special provisions are available for those who are resident in Guernsey solely for employment purposes.
For Guernsey income tax purposes an individual is ‘resident’, ‘solely resident’ or ‘principally resident’ in Guernsey. The definitions relate primarily to the number of days spent in Guernsey during a tax year and, in many cases, also relate to the days spent in Guernsey in a number of preceding years.
Precise definitions and current tax rates and allowances are available on request.
Attractive Tax Cap for Individuals
Guernsey offers favourable tax allowances and those with high incomes can “cap” their liability.
- An individual with both Guernsey and non-Guernsey source income can either:
- Pay 20% tax on Guernsey source income (above a tax-free allowance of £12,175) and cap the liability relating to non-Guernsey source income at a maximum £130,000, OR
- Cap the liability on worldwide income at a maximum £260,000.
An individual with only Guernsey source income can either:
- Pay 20% income tax on his or her income (above a tax-free allowance of £12,175), OR
- Elect to cap his or her liability at a maximum £260,000.
An individual with only non-Guernsey source income can either:
- Pay 20% income tax on his or her income (above a tax-free allowance of £12,175), OR
- Elect to cap his or her liability at £130,000.
Tax Cap for New Guernsey Residents
New residents to Guernsey, who purchase an ‘open market’ property, can enjoy a tax cap of £50,000 per annum on Guernsey source income in the year of arrival and subsequent three years, as long as the amount of Document Duty paid, in relation to the house purchase, is at least £50,000.
Isle of Man
The Isle of Man is one of the easiest jurisdictions for a resident non-domiciled individual to move to in order to reset the clock. The island has no formal requirement to apply for residency and an unrestricted open property market. Tax residency is immediate and only requires completing basic notification information. This makes the Isle of Man an efficient and easy solution for tax residency.
The Isle of Man is an economically safe and politically stable jurisdiction for individuals and companies and is only a one-hour flight from London.
It enjoys one of the EU’s lowest crime levels and has a Moody’s financial rating of Aa1. It is therefore an excellent location for wealth preservation and stability.
The Isle of Man is situated in the Irish sea, centrally located between England, Ireland, Scotland and Wales. The island has beautiful beaches and rolling hills, it can give families space to breath, relax and enjoy what island life has to offer. The island community is very outward looking and welcoming, and there are exceptional recreational and sports facilities.
The Isle of Man Government has invested heavily in utilities and an infrastructure to ensure that island residents have access to an advanced IT network and power supply. The Isle of Man is part of the UK national health system under reciprocal arrangements and health care is state supported and managed, unlike many other locations.
The Isle of Man and British Citizenship
One of the key advantages that immigration to the Isle of Man can offer is that it entitles the successful applicant and his family to receive British Citizenship, if all of the relevant conditions are met. Subsequently, an application can be made for a British passport.
Immigration to the Isle of Man
EU nationals have the right to reside in the Isle of Man, although a work permit may be required in some circumstances.
Non-EU nationals need to obtain a residence visa and there are two types of Isle of Man visa which are particularly attractive to high net worth individuals: Tier 1 Entrepreneur Visa and Tier 1 Investor Visa.
To qualify as an Isle of Man Entrepreneur an applicant needs to invest a minimum of £200,000 in a new or existing business which is registered and pays taxes in the Isle of Man.
Alternatively, an individual can obtain an initial Isle of Man Investor Visa for three years by bringing £2 million into the Isle of Man and investing these funds in permissible investments.
In either instance, as long as the provisions continue to be satisfied, after the initial three-year period the individual will be granted a further two year visa and following this can apply for Indefinite Leave to Remain (ILR) in the Isle of Man. The rules allow for accelerated ILR when certain specified criteria are met.
A spouse and children under the age of 18 can accompany the holder of either type of Isle of Man visa as dependants.
Tax Advantages Available to Individuals
The Isle of Man is an attractive place to live with low rates of income tax, no capital gains tax, no inheritance tax and no stamp duty.
The standard rate of personal income tax in the Isle of Man is 10%, with a higher rate of 20%. Annual personal income tax can be capped at £200,000 for a period of five years for Isle of Man tax residents. This annual tax cap of £200,000 is doubled for a married couple where they choose to be jointly assessed.
There is no restriction on purchasing property in the Isle of Man and there is a single housing market.
Isle of Man tax residents must declare their worldwide income. However, double taxation Relief may be available on income which you have paid foreign tax. In addition, where the election has been made, the Tax Cap of £200,000 would apply.
There are tax concessions available to “key persons” relocating to the Isle of Man and establishing a business on the island, depending on specific circumstances.
Find out more about living in Guernsey.