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🇬🇧 United Kingdom

What should I know when moving to or investing in the UK? ​

Nozipho Tshabalal speaks with Investec's Elizabeth Fick and Catherine de Maid from Burges Salmon in the UK.

More and more South Africans are sending assets offshore to the UK, investing or basing themselves there, says Elizabeth Fick, joint-head of tax and fiduciary at Investec. But there are a number of pitfalls and benefits, which she and Catherine de Maid, a partner at Burges Salmon in Bristol, unpack.

Difference between residence and domicile ​

Residence determines whether or not you’ll be taxed on your worldwide income. The UK distinguishes between residence and domicile, while SA recognises residence only.

In SA, if your everyday life is in SA, you are considered to be a tax resident. Elizabeth calls it the pipe-and-slippers/handbag-and-shoes test, because this is where you would normally keep these everyday objects. Alternatively, a physical presence test, involving a detailed day-counting process, will determine residence in SA.

In the UK, residence is determined by the amount of time you spend there and your ties to the country. Domicile differs from place of residence and nationality, and is determined through common law or statutory law. Under common law, the UK can only become your domicile of choice if you physically live there and have formed the intention of staying and making it your home indefinitely. Catherine says you can move to the UK, and live there for a significant period and still not be domiciled. Under statutory law, you are deemed domiciled if you have lived there for at least 15 of the last 20 years.

Can you be taxed in both jurisdictions? ​

If you’re an SA tax resident, SA taxes you on a worldwide basis, regardless of where you generate your income. It is conceivable that you can be regarded as a resident in both the UK and SA, but luckily their double taxation agreement (DTA) will determine which country has primary taxing rights.

Remittance-based taxation ​

UK residents are by default taxed on an arising basis on worldwide assets, notes Catherine. But if you're a UK resident but not UK domiciled, you can elect to be taxed on a remittance basis. As such, you’re taxed only on UK-sourced income and capital gain. Only when you remit those funds back to the UK, are you taxed on foreign income and gain. So with the right planning, you can live very tax efficiently in the UK. It’s free to claim for the first seven years of tax. From years eight to 12, it costs £30 000 a year and £60 000 a year thereafter. You cannot claim once you’re deemed domicile.

Domicile and inheritance tax ​

While residence is important in determining liability for income and capital gains tax in the UK, domicile determines liability for inheritance tax. If you are UK domiciled or deemed domiciled, you are liable for inheritance tax (of up to 40%) on a worldwide basis, subject to exemptions and relief. Luckily, the UK has an estate duty DTA with SA, so you won’t end up paying tax twice. If you’re non-domiciled in the UK, you’re only liable for inheritance tax on real estate/shares situated in the UK (known as situs assets). The tax is calculated as 40% of the value of UK situs assets exceeding £325 000. You will get a credit in SA for situs taxes you’ve paid in the UK. The UK also recognises spousal rollover. So spouses can bequeath assets to each other without incurring estate duty.

Tax and trusts ​

If an SA trust makes distributions to either yourself or your children in the UK, the consequences are significant, says Elizabeth. For example, exchange control means you’d have to use your R10 million foreign investment allowance to externalise the funds to the UK. You can go through a formal Reserve Bank emigration and place your interest in the trust on the record and, depending on the trust’s structure, the bank could allow assets to be sent offshore. From a UK perspective, the settlor of offshore trusts, including SA trusts, will be taxed on an arising basis for any UK-situated investments in the trust, whether or not they receive funds. As for distributions to individuals, the UK has wide-ranging and complicated anti-avoidance rules, called matching rules, which could see you being taxed at the top rate of 40%. You may get relief if you can prove that the trust was set up not to avoid UK taxes. The DTA offers no relief for trust distributions and you could end up paying onerous taxes in both jurisdictions.

Conclusions ​

Planning is extremely important; Catherine advises planning in the tax year prior to your arrival date in the UK. Elizabeth adds that you should avoid a one-size-fits-all approach as each individual/ family has different needs.