What is the Tax Treatment of Money from abroad used to purchase property in the UK?
The short answer is that non-UK income and gains received by a non-UK resident are not subject to UK tax and the act of bringing non-taxable funds to the UK does not make them taxable. They are, for all intents and purposes, ‘clean capital’.
Once you become UK resident, HMRC will tax your worldwide incomes & gains on an arising basis but if you consider yourself non-UK domiciled, then you can elect to be taxed on the remittance basis for that year.
On the remittance basis, you would be taxable only on UK source income & gains arising, and foreign income and gains remitted to the UK during the year. Crucially, a remittance of funds comprising foreign income that had arisen in a year during which you were non-UK resident would not be a taxable remittance.
Separate Bank Accounts
If appropriate, overseas bank accounts may be structured to segregate future income and gains from the clean capital to allow the untainted funds to be remitted. At least a note should be taken of any foreign assets holding unrealised capital gains, because foreign gains realised while UK resident will be subject to capital gains tax (whether on an arising basis or, if on the remittance basis, when remitted). Conversely, gains realised before becoming UK resident will not be subject to UK capital gains tax in any case.
To maximise the amount in the clean capital account, consideration should be given to disposing of some or all of your personally held investments that are standing at gain before you become UK resident.
Remittances for Investments purposes
Business Investment Relief is designed to encourage non-domiciled individuals to bring money to the UK for investment in commercial businesses.
Where a qualifying investment is made, any foreign income or gains brought to the UK in order to make that investment are treated as not remitted to the UK.
There is no limit to the amount of remittances which qualify for relief.
A qualifying company investment is either,
- A subscription for shares or securities in a non-listed trading company, or
- A loan to the company.
The investment must be into:
- A company which carries on a commercial trade being one in which trade activities account for at least 80% of the company’s total activities or,
- A company which will trade within two years.
For these purposes, trade includes a business which generates income from land. Therefore, shares in companies which hold investment property for commercial rental are qualifying investments.