Emigrating, whether to pursue an exciting professional opportunity, enrol your children in school or simply experience life in another country, involves a lot of decisions and planning. Navigating the intricacies of cross-border tax planning can add to many people’s stress as they aim to ensure their move is arranged in a tax-efficient and manageable way.
Whilst every family’s situation is different and should be reviewed in detail, we have set out our top ten tips for individuals to consider when planning a move to the UK from South Africa.
1. Get advice early
Professional advice should ideally be sought in South Africa and the UK prior to arrival. It is important to remember that, although South Africa’s tax year runs from 1 March to the 28/29 February, the UK’s tax year runs from 6 April to 5 April. In addition, even if you arrive in the UK part way through the UK tax year, you may be considered to be UK tax resident from the 6 April before your arrival. However, if you qualify for 'split year treatment', the tax year will effectively be divided into a UK part and an overseas part. This split year treatment only applies in limited circumstances. Therefore, the timing of your arrival from both a UK and South African perspective should be carefully considered.
It is important to seek advice in the tax year prior to arrival. This will ensure that your move, and your time spent living in the UK, are planned as efficiently as possible.
2. Collaboration
Your South African and UK advisors should ideally work closely together from the outset so that the advice is coordinated. It may be necessary for steps to be taken in a particular order to prevent the planning in one country being detrimental to the other.
At Burges Salmon, we are used to working closely with advisors in South Africa to plan clients’ relocations to the UK. We are happy to work with your existing advisor or, if you do not have a tax advisor in South Africa, we can put you in touch with our contacts.
3. Interaction between immigration and tax
Check your immigration status and the basis on which you have, or would like, the right to live in the UK. This may be through British citizenship, an ancestry visa, an investor visa or other means. The UK has distinct immigration and tax systems which are linked in some aspects. It is important to consider, and understand, the interactions between these two systems. It is possible that your tax residence and immigration residence requirements in the UK may not be compatible. We have a particular specialism on these interactions and regularly advise on the UK tax implications of moving to the UK, pre-immigration tax planning, tax residence, domicile, settlement and naturalisation.
4. Differences in key concepts
In the UK, an individual’s tax position is based on two factors; their residence and their domicile. A person’s residence is determined by the statutory residence test.
Domicile is a concept which is unique to UK law and it is different to citizenship. Domicile is not defined in statute, instead its meaning is derived from case law. Domicile determines which jurisdiction will govern certain aspects of an individual’s personal affairs, such as succession law and marriage. It can also affect how you are taxed in the UK. If an individual is not domiciled in one of the legal jurisdictions in the UK (England and Wales, Scotland or Northern Ireland), then they will only be liable for UK Inheritance Tax on their UK situs assets (instead of their worldwide assets). In addition, a non-UK domiciled individual will potentially have access to the remittance basis of taxation (instead of the arising basis), which means that their foreign income and gains are not subject to UK tax unless they are 'remitted' to the UK.
If you move to the UK and spend the majority of your time here, there is a good chance that you will become UK tax resident. However, it is possible that you will not become UK domiciled under common law – this will depend upon your intentions when moving to the UK and whether you have the intention to live in the UK permanently or indefinitely. You will however become 'deemed domiciled' in the UK under statute once you have been resident in the UK for at least 15 out of the previous 20 tax years.
In South Africa, taxation is based upon residence. An individual can be resident under the physical presence test (because they spend a sufficient amount of time in South Africa) or they can be 'ordinarily resident' (if South Africa is considered to be their fixed or settled residence, or the place to which they would return 'after their wanderings').
You and your South African tax adviser will need to consider whether you will cease to be tax resident in South Africa following your move. If you do cease to be tax resident in South Africa, this will have capital gains tax consequences in South Africa.
If you do not cease to be tax resident in South Africa, then you may well find yourself in the position where you are tax resident in both the UK and South Africa under the domestic laws of each country. In this situation, your advisers will need to examine the residency 'tie-breaker' clause in the UK/South Africa Double Tax Treaty to establish in which country you are deemed to be exclusively tax resident for the purposes of the treaty. This in turn will determine which country has the right to tax various types of your income and gains.
It is generally sound planning to ensure that you receive advice on both your UK and South African residency position, and your UK domicile position, before you move to the UK.
5. Pre-arrival planning and the remittance basis
The rules surrounding the remittance basis are complicated. There are certain steps which should be taken by individuals who qualify for the remittance basis prior to becoming UK resident in order to make full use of the reliefs available. This is likely to involve setting up a number of separate bank accounts outside the UK, so that capital, foreign income and foreign capital gains can be segregated. These accounts need to operate in a specific way, so it is a good idea to discuss these requirements with your bank well in advance of your move.
6. Review of existing structures and investments
It is common for wealthy South African families to hold assets via both domestic South African trusts and offshore structures. It is important that all such structures are reviewed prior to the family’s arrival in the UK to understand how these structures, and their trustees, settlors and beneficiaries, will be taxed from a UK tax perspective.
Any gains realised before you become UK tax resident should not be chargeable to UK tax, even if you later remit the proceeds to the UK. This assumes you have not been UK resident before and are not caught by our temporary non-residence rules. You may therefore wish to consider whether you want to dispose of any assets prior to moving so that the gain escapes UK tax. The UK does not 'rebase' your assets when you become tax resident, so if you own an asset when you become resident and later dispose of the asset, you will (subject to the remittance basis) be subject to UK capital gains tax on the full amount of the gain, and not just any increase in value which occurs once you are UK resident.
An actual disposal can also be helpful for South African tax purposes. If you cease to be tax resident in South Africa, you will be deemed to have disposed of certain assets for South African tax purposes and you will be subject to a capital gains tax 'exit charge'. Where assets are not actually disposed of, this is a 'dry tax charge'. An actual disposal can therefore help to fund this tax charge.
7. Company directorships and trusteeships
If you are the director of a South African company, or the trustee of a domestic South African trust, you should take advice on any steps which might need to be taken to ensure that you do not accidentally cause the South African company or trust to have a taxable presence in the UK following your move.
8. Internationally mobile employees
If you are likely to continue to perform services outside of the UK following your move, it is worth mentioning that the UK has a beneficial relief known as 'overseas workdays’ relief' which you may qualify for during your first three years of tax residence in the UK. If you qualify for this relief, you should only be subject to tax in the UK on the portion of your salary which relates to your UK workdays. Whether you are subject to tax in the other jurisdictions in which you perform services will depend on the domestic laws of those jurisdictions, and the terms of any double tax treaty in place between the UK and that other country.
9. Purchasing a property
Many people moving from South Africa are keen to purchase a property in the UK to live in following their arrival so they can settle in and feel at home. Assets situated in the UK will potentially be subject to inheritance tax on your death, even if you do not become UK domiciled or deemed domiciled. The right planning can help mitigate your inheritance tax exposure. For example, you should seek advice on how the purchase should be funded and whether taking out a bond (known as a mortgage in the UK) to acquire the property would be tax efficient.
If you are claiming the remittance basis and you need to bring money into the UK to fund (or partially fund) the purchase, you will need to think carefully about which funds you remit to the UK so that you do not inadvertently remit foreign income or gains.
10. Asset protection – Antenuptial contracts
The UK does not have a marital property regime. Instead, our courts have very wide discretion in relation to the allocation of assets on the dissolution of a marriage or civil partnership. Whilst nuptial agreements are not legally binding in the UK, provided certain safeguards are met, they are likely to be upheld.
If a South African antenuptial contract does not include all of the required safeguards, it is unlikely to be recognised and upheld in the UK. We recommend that you seek advice and consider putting in place a UK post nuptial agreement or co-habitation agreement before or soon after arriving in the UK to ensure that your assets are adequately protected.
How can we help?
Burges Salmon's tax specialists have substantial experience in tax, trusts, and estate planning for international clients. If you wish to discuss any of the matters raised in this article, please do get in touch with Catherine de Maid or your usual contact within the team.
For further information, please also see our webpage Moving to the UK, which includes more details on the key issues for wealthy individuals looking to relocate to the UK and a link to a series of videos we have produced, including Catherine de Maid discussing her tips for people moving to the UK from South Africa.
You may also like to view our new App, ResiCheck, which we have launched to help Burges Salmon clients – at no cost – work out whether they are tax-resident in the UK.
This article was written by Catherine de Maid and Helen MacLeod.