Non-dom UK resident clean capital, income and tax planning

[Defender]

Hi everyone! Pretty happy that I found this forum as people here seem to have way more knowledge than on Reddit and the likes.

So, recently me and my wife moved to the UK for work. Before that we lived a bit more than 5 years in the Netherlands, but originally we are from one non-EU European country and hold citizenship of that country, so we're non-domiciled in UK.

In the Netherlands we had an apartment and some investments (stocks) which we sold prior to moving to the UK (the apartment was sold on the in the morning of the exact same day that we entered the UK, money entered our Dutch bank account a few days later, but before my employment started). Overall all our assets come from salary + selling the apartment + profit from selling stocks. The first question is following: can we consider money on our European bank account to be "clean capital", considering the fact that money for selling apartment arrived to our account when we were already in the UK, but before my employment started? And the next question is how to tell HMRC that this is clean capital if I decide to move money to the UK e.g. 5 years later?

The next question is what to do with our assets. Let's imaging we decide not to bring the money into the UK. Everyone is talking about offshore bank account in Jersey or similar jurisdictions. But do we really need such kind of bank account or we can keep our regular Dutch one? Obviously, we don't want this money just to sit and instead we want to put it to work. We'd like to invest it into stocks, preferably ETFs. As far as I understand in this case distributing ETF is better as calculating dividend income from accumulating ETF for UK taxes would become a nightmare.

Now let's talk some imaginary numbers. Let's say we have 500k GBP that we want to invest. BTW, what would be the best bank/broker to do that? From what I read on this forum, it's Swissquote or Saxo. But I'm wondering if I can use Interactive Brokers (and how do I make sure I'm not using IB UK and not automatically remitting money to the UK?).

Anyways, let's imagine we buy VWRL ETF for 500k GBP and hold it for one fiscal UK year. VWRL has 1.41% dividend yield. That means that after one year we will get ~7k GBP of dividend income (paid into separate special account for exactly this purposes). This is more than 2k or 2+2k dividend allowance (if we have joint investment account, is our allowance 4k?). Then, before the end of the year we sold all stocks for 550k GBP, and now we have 50k on separate account for capital gains and 500k on our initial clean capital account. When the end of tax year comes, we need to decide if we would like to be taxed based on remittance or arising basis:

• If we use arising basis, then we need to pay 33.75% or 39.35% tax on 7 - 4 = 3k of dividend income (I'll be in additional-rate tax payer group and my wife in higher-rate group, how does it work for joint accounts? half taxed at 33.75% and half at 39.35%?) and 20% tax on 50 - 24.6 = 26.4k of capital gains (again assuming that our 12.3k GBP CGT allowances sum up). Plus we will retain the personal tax allowance 12570 GBP per person (not for myself though, just for my wife). Are these correct calculations? After we paid taxes on these incomes, can we merge it with our clean capital? Or we just need to bring it into the UK without any tax consequences? What are other options?
• If we use remittance basis, we will not receive 12570 GBP personal tax allowance, but we will not need to pay taxes on our dividend income and capital gains. How it will be taxed if we decide to bring this money to the UK? If we don't bring money to the UK, can we reinvest them? Do we need to open new accounts to hold dividend income and capital gains from the next year and so on? Will we in the end end up with dozens of accounts?

Besides that money both me and my wife will be awarded RSUs from our employers that are going to vest in chunks in upcoming years. ‘Remittance basis’ could play a role in this too as far as I understand.

Thanks in advance and sorry if I wrote some nonsense.

 

[burden]

The first question is following: can we consider money on our European bank account to be "clean capital", considering the fact that money for selling apartment arrived to our account when we were already in the UK, but before my employment started?

of course you can, you must have papers for the deal to proof your source of funds, straight like this.

And the next question is how to tell HMRC that this is clean capital if I decide to move money to the UK e.g. 5 years later?

again, papers and documents on the sales you have made is sufficient.

The next question is what to do with our assets. Let's imaging we decide not to bring the money into the UK. Everyone is talking about offshore bank account in Jersey or similar jurisdictions. But do we really need such kind of bank account or we can keep our regular Dutch one?

You need to speak with some tax advisor in the UK they may be able to help you. Offshore accounts will usually not help you any longer, but again, a tax expert in the UK will know what to do in this case and how to go about it.

You may check if you could move it all into a offshore company abroad and then get it tax free inside the UK, I'm not an expert but that may work in your situation.

 

[Larin]

Thats a whole lot of questions and some of them, especially anything to do with remittance-based taxation is probably best answered by a local tax advisor. It might run you a few £k, but will give you the clarity you seek.

However, some of these, I'll take a guess at, but please treat my answers for what they are: pixels on the internet provided by strangers.

The first question is following: can we consider money on our European bank account to be "clean capital", considering the fact that money for selling apartment arrived to our account when we were already in the UK, but before my employment started? And the next question is how to tell HMRC that this is clean capital if I decide to move money to the UK e.g. 5 years later?

Ideally, the date you disposed of your assets and the date you moved to the UK would have been a bit further apart. I couldn't find any information on whether UK treats asset appreciation on stepped up basis upon immigration (meaning that their value is fixed to the value on the day you become a UK tax resident, and therefore capital gains would be nill), but I also suspect that you will have paid tax in your home country and through a double taxation agreement you would get the credit for it anyway. So, it is probably safe to treat this as 'clean capital' for UK tax purposes.

The next question is what to do with our assets. Let's imaging we decide not to bring the money into the UK. Everyone is talking about offshore bank account in Jersey or similar jurisdictions. But do we really need such kind of bank account or we can keep our regular Dutch one? Obviously, we don't want this money just to sit and instead we want to put it to work. We'd like to invest it into stocks, preferably ETFs. As far as I understand in this case distributing ETF is better as calculating dividend income from accumulating ETF for UK taxes would become a nightmare.

So, one thing to consider is that when you immigrate to the UK you can bring as many assets as you wish with you and it would not be considered remittance. I have been advised in the past that brining in capital at this stage is actually quite beneficial as its essentially a tax free way to bring it onshore and use as you see fit without having to worry about paying tax on it later on if chose to be taxed on remittance basis. So, something to consider there.

Now let's talk some imaginary numbers. Let's say we have 500k GBP that we want to invest. BTW, what would be the best bank/broker to do that? From what I read on this forum, it's Swissquote or Saxo. But I'm wondering if I can use Interactive Brokers (and how do I make sure I'm not using IB UK and not automatically remitting money to the UK?).

I've used IBKR in the past and quite liked them. However, if your physical and tax residency will be in the UK, it is likely that you will be registered with IBKR UK (see my answer above)

• If we use arising basis, then we need to pay 33.75% or 39.35% tax on 7 - 4 = 3k of dividend income (I'll be in additional-rate tax payer group and my wife in higher-rate group, how does it work for joint accounts? half taxed at 33.75% and half at 39.35%?) and 20% tax on 50 - 24.6 = 26.4k of capital gains (again assuming that our 12.3k GBP CGT allowances sum up). Plus we will retain the personal tax allowance 12570 GBP per person (not for myself though, just for my wife). Are these correct calculations? After we paid taxes on these incomes, can we merge it with our clean capital? Or we just need to bring it into the UK without any tax consequences? What are other options?

I am not going to comment on the exact rates as they will depend on your income, but if you go with arising basis, you will pay the appropriate tax on your global income depending on the source of income and afterwards you can do whatever you want with the money.

• If we use remittance basis, we will not receive 12570 GBP personal tax allowance, but we will not need to pay taxes on our dividend income and capital gains. How it will be taxed if we decide to bring this money to the UK? If we don't bring money to the UK, can we reinvest them? Do we need to open new accounts to hold dividend income and capital gains from the next year and so on? Will we in the end end up with dozens of accounts?

Unfortunately, the rules on remittance are complicated and will depend on the type of income. There is a whole guide that HMRC uses that gives clarify if you would like to read it all (RDRM31100 - Residence, Domicile and Remittance Basis Manual - HMRC internal manual - GOV.UK). For example, if you are remitting dividends as cash, the following calculations will apply: RDRM31160 - Residence, Domicile and Remittance Basis Manual - HMRC internal manual - GOV.UK.
I would say, to be on a conservative side, you should expect to pay your income tax rate on income funds that you remit.

Hope this helps, but please, do not treat anything above as advise, tax or financial. Seek professional advise as the areas that are relevant to you are complex to say the least.

 

[Asterion]

Hi everyone! Pretty happy that I found this forum as people here seem to have way more knowledge than on Reddit and the likes.

So, recently me and my wife moved to the UK for work. Before that we lived a bit more than 5 years in the Netherlands, but originally we are from one non-EU European country and hold citizenship of that country, so we're non-domiciled in UK.

In the Netherlands we had an apartment and some investments (stocks) which we sold prior to moving to the UK (the apartment was sold on the in the morning of the exact same day that we entered the UK, money entered our Dutch bank account a few days later, but before my employment started). Overall all our assets come from salary + selling the apartment + profit from selling stocks. The first question is following: can we consider money on our European bank account to be "clean capital", considering the fact that money for selling apartment arrived to our account when we were already in the UK, but before my employment started? And the next question is how to tell HMRC that this is clean capital if I decide to move money to the UK e.g. 5 years later?

The next question is what to do with our assets. Let's imaging we decide not to bring the money into the UK. Everyone is talking about offshore bank account in Jersey or similar jurisdictions. But do we really need such kind of bank account or we can keep our regular Dutch one? Obviously, we don't want this money just to sit and instead we want to put it to work. We'd like to invest it into stocks, preferably ETFs. As far as I understand in this case distributing ETF is better as calculating dividend income from accumulating ETF for UK taxes would become a nightmare.

Now let's talk some imaginary numbers. Let's say we have 500k GBP that we want to invest. BTW, what would be the best bank/broker to do that? From what I read on this forum, it's Swissquote or Saxo. But I'm wondering if I can use Interactive Brokers (and how do I make sure I'm not using IB UK and not automatically remitting money to the UK?).

Anyways, let's imagine we buy VWRL ETF for 500k GBP and hold it for one fiscal UK year. VWRL has 1.41% dividend yield. That means that after one year we will get ~7k GBP of dividend income (paid into separate special account for exactly this purposes). This is more than 2k or 2+2k dividend allowance (if we have joint investment account, is our allowance 4k?). Then, before the end of the year we sold all stocks for 550k GBP, and now we have 50k on separate account for capital gains and 500k on our initial clean capital account. When the end of tax year comes, we need to decide if we would like to be taxed based on remittance or arising basis:

• If we use arising basis, then we need to pay 33.75% or 39.35% tax on 7 - 4 = 3k of dividend income (I'll be in additional-rate tax payer group and my wife in higher-rate group, how does it work for joint accounts? half taxed at 33.75% and half at 39.35%?) and 20% tax on 50 - 24.6 = 26.4k of capital gains (again assuming that our 12.3k GBP CGT allowances sum up). Plus we will retain the personal tax allowance 12570 GBP per person (not for myself though, just for my wife). Are these correct calculations? After we paid taxes on these incomes, can we merge it with our clean capital? Or we just need to bring it into the UK without any tax consequences? What are other options?
• If we use remittance basis, we will not receive 12570 GBP personal tax allowance, but we will not need to pay taxes on our dividend income and capital gains. How it will be taxed if we decide to bring this money to the UK? If we don't bring money to the UK, can we reinvest them? Do we need to open new accounts to hold dividend income and capital gains from the next year and so on? Will we in the end end up with dozens of accounts?

Besides that money both me and my wife will be awarded RSUs from our employers that are going to vest in chunks in upcoming years. ‘Remittance basis’ could play a role in this too as far as I understand.

Thanks in advance and sorry if I wrote some nonsense.

Do you know what keeps an individual in the position of being resident but not domiciled in the UK?

 

[Larin]

Do you know what keeps an individual in the position of being resident but not domiciled in the UK?

I couldn't possibly do a better job of summarising the rules than this page: Deemed Domicile rules

But in short, you are domiciled either because you were born in the UK, or you have spent 15 or more years living the UK.

 

[Asterion]

Thanks. Gaining UK nationality doens't seem to make a difference. I have a settled status and I am looking to gain nationality in 2022. I'll investigate things further, but thanks for the link, Larin.

 

[gh71]

Hi everyone! Pretty happy that I found this forum as people here seem to have way more knowledge than on Reddit and the likes.

So, recently me and my wife moved to the UK for work. Before that we lived a bit more than 5 years in the Netherlands, but originally we are from one non-EU European country and hold citizenship of that country, so we're non-domiciled in UK.

In the Netherlands we had an apartment and some investments (stocks) which we sold prior to moving to the UK (the apartment was sold on the in the morning of the exact same day that we entered the UK, money entered our Dutch bank account a few days later, but before my employment started). Overall all our assets come from salary + selling the apartment + profit from selling stocks. The first question is following: can we consider money on our European bank account to be "clean capital", considering the fact that money for selling apartment arrived to our account when we were already in the UK, but before my employment started? And the next question is how to tell HMRC that this is clean capital if I decide to move money to the UK e.g. 5 years later?

The next question is what to do with our assets. Let's imaging we decide not to bring the money into the UK. Everyone is talking about offshore bank account in Jersey or similar jurisdictions. But do we really need such kind of bank account or we can keep our regular Dutch one? Obviously, we don't want this money just to sit and instead we want to put it to work. We'd like to invest it into stocks, preferably ETFs. As far as I understand in this case distributing ETF is better as calculating dividend income from accumulating ETF for UK taxes would become a nightmare.

Now let's talk some imaginary numbers. Let's say we have 500k GBP that we want to invest. BTW, what would be the best bank/broker to do that? From what I read on this forum, it's Swissquote or Saxo. But I'm wondering if I can use Interactive Brokers (and how do I make sure I'm not using IB UK and not automatically remitting money to the UK?).

Anyways, let's imagine we buy VWRL ETF for 500k GBP and hold it for one fiscal UK year. VWRL has 1.41% dividend yield. That means that after one year we will get ~7k GBP of dividend income (paid into separate special account for exactly this purposes). This is more than 2k or 2+2k dividend allowance (if we have joint investment account, is our allowance 4k?). Then, before the end of the year we sold all stocks for 550k GBP, and now we have 50k on separate account for capital gains and 500k on our initial clean capital account. When the end of tax year comes, we need to decide if we would like to be taxed based on remittance or arising basis:

• If we use arising basis, then we need to pay 33.75% or 39.35% tax on 7 - 4 = 3k of dividend income (I'll be in additional-rate tax payer group and my wife in higher-rate group, how does it work for joint accounts? half taxed at 33.75% and half at 39.35%?) and 20% tax on 50 - 24.6 = 26.4k of capital gains (again assuming that our 12.3k GBP CGT allowances sum up). Plus we will retain the personal tax allowance 12570 GBP per person (not for myself though, just for my wife). Are these correct calculations? After we paid taxes on these incomes, can we merge it with our clean capital? Or we just need to bring it into the UK without any tax consequences? What are other options?
• If we use remittance basis, we will not receive 12570 GBP personal tax allowance, but we will not need to pay taxes on our dividend income and capital gains. How it will be taxed if we decide to bring this money to the UK? If we don't bring money to the UK, can we reinvest them? Do we need to open new accounts to hold dividend income and capital gains from the next year and so on? Will we in the end end up with dozens of accounts?

Besides that money both me and my wife will be awarded RSUs from our employers that are going to vest in chunks in upcoming years. ‘Remittance basis’ could play a role in this too as far as I understand.

Thanks in advance and sorry if I wrote some nonsense.

Hi there, if you wish to keep funds and investments offshore and claim on remittance basis, it's probably best to use institutions that regularly deals with non-domiciled UK residents, for example Barclays IoM (banking) and Jersey (investment). They will ensure that dividend and capital gains are separated correctly for when you need to remit to the UK, and manage your investment portfolio according to your risk profile. You can apply online and you'll qualify for both bank and managed investment accounts with 500K, with relationship managers. The process is straight forward. For peace of mind you could also use someone like E&Y for advice and tax returns, as they have teams with specialist knowledge and experience dealing with HMRC on these subjects.

Going the offshore route could also open interesting options like low interest loans with security in your investment, for use in further offshore activities, i.e. real estate purchases in your home country. Also look into business investment relief and (S)EIS for a tax efficient way to bring offshore income onshore as a strategy during your non-domiciled years.

 

[Defender]

Hi there, if you wish to keep funds and investments offshore and claim on remittance basis, it's probably best to use institutions that regularly deals with non-domiciled UK residents, for example Barclays IoM (banking) and Jersey (investment).

Which institution do you mean when you say "Jersey"?

Going the offshore route could also open interesting options like low interest loans with security in your investment, for use in further offshore activities, i.e. real estate purchases in your home country. Also look into business investment relief and (S)EIS for a tax efficient way to bring offshore income onshore as a strategy during your non-domiciled years.

The more I read the more I feel it's all very complex. Is it even worth to play with this remittance stuff with 500k? One of the financial advisers told me right away that it would make sense if I had at least 5m or better 50m.

 

[gh71]

Which institution do you mean when you say "Jersey"?

Barclays (they do banking for <5M non-doms in IoM and managed investments in Jersey).

The more I read the more I feel it's all very complex. Is it even worth to play with this remittance stuff with 500k? One of the financial advisers told me right away that it would make sense if I had at least 5m or better 50m.

It's probably not going to make much difference at that level, but useful to do in order to fully understand the possibilities and future options, in my opinion. The security in investment based loan I mentioned, for example, could be difficult to find onshore.