Clean Capital Planning for individuals relocating to the UK

When you become a tax resident in the UK, you are potentially exposed to UK taxes on your worldwide income and gains. However, an individual who is a UK resident but not permanently residing in the UK (‘resident but not domiciled’) can claim certain tax benefits and not be subject to UK taxation in relation to foreign source income or capital gain, provided the income or gain is not brought to, or directly or indirectly used in, the UK. This is called the “remittance basis” taxation, which in the case of long-term residents, can be claimed by paying the appropriate fees.        

However, even if the remittance basis is claimed, if you transfer money into the UK to fund, for example, living expenses or property acquisition, you may be subject to UK income tax or capital gains tax, unless the fund is from what is known as “clean capital”.       

Clean capital refers to the income or profits accrued before you become a tax resident in the UK under the Statutory Resident Test (SRT) and, in principle, means capital that can be remitted to the UK without paying additional UK taxes even after you become a UK resident. The most common clean capital may include capital accrued from foreign income and profits prior to your becoming a tax resident in the UK or gifts and monies received by way of inheritance.       

With the right tax planning advice, some individuals may be able to live in the UK by transferring clean capital without paying taxes during their stay in the UK.

Individuals planning to relocate to the UK and becoming tax residents should give due consideration to whether the necessary measures are in place to create and preserve clean capital as part of their pre-arrival planning. It is one of the most important steps to be taken for individuals moving to the UK to avoid the loss of valuable tax-saving opportunities. At Boxwell, we can help you plan a strategy to take advantage of your non-domiciled status.