David Shawyer & Co Ltd - Chartered Accountants

DAVID SHAWYER & CO. LTD.

CHARTERED ACCOUNTANTS

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Articles written by David Shawyer and published in relevant journals.

UK INCOME TAX FOR THOSE ARRIVING IN OR LEAVING THE UK

Are you one of the increasing number of non-UK nationals coming to work for the Health Service in the UK, or someone who is leaving the UK to gain further expertise abroad? If so, there are special rules, which apply to the UK taxation of your income and there are tax planning opportunities available. A person’s residence status and nationality play an important part in determining their liabilities.

Let us first of all look at the position of a non-UK national arriving to work in the UK.

Whatever the time of the year an individual arrives here, they will be taxable on their earnings in the UK from that date – none of their prior foreign earnings should be taxable. Furthermore, they will usually be eligible for a full year’s personal allowance, even though only resident for part of a tax year.

In certain circumstances, during the first three years of residence in the UK, it can be possible not to have to pay income tax in respect of earnings attributable to periods spent working outside the UK, as long as the earnings are kept outside the UK.

If an individual has foreign investment income, then this is only taxable in the UK if the funds are actually brought into the UK. “Capital”, which is essentially funds held prior to arrival here, can be remitted tax free to the UK, but any interest/dividend/capital gains arising subsequent to arrival should be segregated in a separate bank account(s), otherwise they will be taxable if remitted.

You need to notify the Inland Revenue of your arrival on Form P86 and if you have overseas investments, then you may also need to complete a domicile questionnaire (Form DOM1).

If you have paid foreign taxes on any investment income that is brought into the UK, then you can claim a credit for these taxes (you do not pay taxes twice on the same income).

Let us now look at the position of someone who leaves the UK.

As long as you leave the UK for a period including a full tax year (6 April to 5 April) and you do not make interim visits exceeding an average of three months a tax year, then you will not be taxable here in the UK on foreign earnings following your departure. Furthermore, you should be entitled to a tax refund unless you leave the UK right at the end of the tax year. If you do carry out some work in the UK on any return visits, then these earnings will normally be taxable.

Any property rental income will be fully taxable in the UK but the tax on other investment income is limited to the tax deducted at source. Special rules apply to rent paid to non-residents – tax will be deducted at source from the rental payments unless you obtain clearance from the Revenue (Form NRL1).

For the first and subsequent full years of non-residence, it is possible to ask banks/building societies to pay interest on a gross basis. Similarly, if an individual is in receipt of a UK pension, then it can be possible for a claim to be made for this to be paid gross.

EU and Commonwealth citizens will still be eligible for full personal allowances, even though living abroad (and certain non-UK citizens where there is a Tax Treaty with the UK). An individual will remain liable to capital gains tax on the sale of assets owned prior to departure unless they remain outside the UK for five full tax years (intervening trips of up to an average of three months a year can still be made).

Residence and domicile are complex provisions and this article has only covered the very basic issues. If you think the above provisions are relevant to you, you must seek professional advice. Unfortunately, local tax offices do not have the expertise to help but there is a specialist Centre for Non Residents which can be contacted on 01514 726137.

David has a practice, which handles the affairs of expatriates arriving to work in the UK and those individuals who leave the UK to work abroad.

NEW RULES FOR TAXATION OF NORWEGIAN SECTOR EARNINGS FOR DIVERS

The UK/Norwegian Double Tax Treaty was amended with effect from April 2001. Previously Norwegian sector earnings were totally exempt from UK income taxes, which meant they were ignored and did not have to be reported on Self Assessment Income Tax Returns. (They were still earnings which could be taken into account for determining allowable personal pension payments). However, these earnings now have to be reported on Tax Returns for the latest year to 5 April 2002 and a credit taken for Norwegian taxes paid.

If you are paying UK income taxes at the highest 40% rate, then you could now end up with additional tax to pay. It has therefore become important to consider whether you are eligible for Seafarer’s relief, whereby these earnings could be totally exempt again from UK taxation.

You cannot claim Seafarer’s relief on self-employed UK sector diving earnings, but if you can exempt Norwegian earnings (and any other “employment” earnings, such as Dutch sector or other foreign earnings), then this could well result in reducing your overall liability quite substantially by limiting those earnings chargeable at 40%.

You should be able to claim Seafarer’s relief if, in any 12 month period:

1. You spend more than six months offshore/away from home (including holidays) and your visits home do not exceed the one half limit and

2. You have at least one trip per employer and per tax year to a foreign port (which includes working outside the UK sector).

Remember, that all the time spent wherever offshore on platforms or other offshore installations (including jack-ups, semi submersibles and drill ships) counts towards your qualifying period, but it is only the earnings attributable to time spent on qualifying vessels which is tax free.

It makes sense to complete the Seafarer’s Claim Form (P84) as you go along. This enables you to determine whether or not you need to take a foreign holiday in order for the relief to continue if you have extended leave onshore. Many of our clients ask us to do these calculations for them.

You may still be able to reduce your Norwegian tax liability by claiming the seaman’s deduction where you spend more than 130 days offshore (this is not just in the Norwegian sector). The rules were changed from the 1 January 1999 so that relief is no longer available to “individuals working on vessels in petroleum activity insofar as regards survey, exploration, extraction, exploitation and pipeline transportation”. However, relief still applies to work on vessels which carry out “supply, standby anchor handling services, seismic or geological services and other comparable activity, as well as construction, pipe-laying or maintenance activities”. If you are not sure whether your activities qualify for the relief, you or your advisor need to contact the Norwegian Authorities at the Central Office Foreign Tax Affairs in Stavanger.

David has a practice, which specialises in helping divers and other offshore personnel.

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