Expatriate Executive: UK

The UK is no tax haven, but it does have relatively low tax rates compared with some other European countries, and it offers some degree of exemption (see below) from tax for income from foreign investments for people who are resident but not domiciled in the UK. For expatriate executives with assets to invest, a UK posting or residential base therefore offers good tax planning opportunities.

Foreign investment income has traditionally been exempt from tax for such individuals as long as the income is not remitted to the UK. Therefore they can safely make offshore investments knowing that the income will be reinvested without deduction - the ideal way of turning income into capital without taxation.

American citizens, and nationals of the very few other countries that tax world-wide income on the basis of citizenship, won't be able to take advantage of this UK possibility, but for all other nationals, it is available.

The UK Treasury has, however, been making threatening noises against the tax advantages of 'nondoms' for some years, and in 2008 Chancellor Alistair Darling introduced a scheme under which UK residents who are non-domiciled have to pay an annual charge of GBP30,000 to ensure that they contribute in respect of the foreign income and gains which they keep abroad and on which they do not pay UK tax.

The charge applies if they have been resident in the country for more than 7 years. Users of the remittance basis also lose their tax free personal allowances.

The Gaines-Cooper case regarding the terms under which one can be considered non-domiciled in the UK has also been the subject of some confusion, meaning that the situation for those in such a position remains unclear, even after HMRC issued 400 pages of guidance on residency issues in March, 2009.

The best type of offshore investment may depend on future residential plans. Many countries tax world-wide income based on residence, and if a return to such a home jurisdiction is planned then investments should probably be made through trusts or other tax-distancing vehicles. If return is planned to a home tax regime which fixes only on domestic source income (the case for many or most offshore jurisdictions), then direct investment is safe enough.

www.lowtax.net contains details of the corporate and individual tax regimes for 35 offshore jurisdictions.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.