The taxation of individuals in the UK is determined by residence and domicile status. Effective from 6 April 2013, the UK applies a comprehensive statutory residence test (SRT) to determine whether an individual is resident in the UK. The SRT has rules that determine whether someone is one of the following:
- Conclusively UK nonresident
- Conclusively UK resident
- Subject to the “sufficient ties” tests to determine their UK residence status
Professional advice should be obtained for any queries regarding the different rules that applied before 6 April 2013.
Residents. Tax residents are liable to UK tax on their worldwide income. However, individuals who are regarded as not domiciled in the UK (see Domicile) may not be liable to UK tax on offshore income and capital gains if the funds are not remitted to the UK (this is known as the “remittance basis”).
Before 6 April 2008, the remittance basis was automatic for those who qualified. Effective from 6 April 2008, individuals wanting to be taxed on the remittance basis must, in most cases, make a claim each year. For further details regarding the remittance basis, see Remittance basis.
Nonresidents. Nonresidents are subject to tax on their UK-source income, such as compensation attributable to UK workdays and certain UK-source investment income. Under the SRT, an individual who has been nonresident for UK tax purposes throughout the preceding three UK tax years is generally regarded as conclusively nonresident if he or she spends no more than 45 days in the UK in any UK tax year. Other tests may also apply under which a taxpayer is regarded as conclusively nonresident, the most common of which is the test applying to an individual who meets the conditions for “full-time work abroad” (FTWA) during the tax year. This term has a statutory definition under the SRT and is very different from the previous practice.
UK residence. Different rules applied before 6 April 2013, and the residence position of someone arriving in the UK before that date may or may not be subject to those rules. Consequently, professional advice should be obtained if relevant.
From 6 April 2013, employees leaving the UK most commonly cease to be UK tax resident by virtue of FTWA. FTWA, as defined under SRT, requires individuals to work for a minimum of 35 hours per week under one or more contracts of employment and/or self-employment (the methodology for calculating the hours per week is set out in the legislation) for the relevant tax year. It also places a limit on the number of days (maximum of 90 per UK tax year) and workdays (maximum of 30 per UK tax year) that an individual may spend in the UK and still be regarded as FTWA for the tax year concerned. It is also possible to be conclusively nonresident by spending no more than a de minimis number of days in the UK in a tax year (15 days if the individual has been resident in any of the previous three tax years and 45 days if he or she has been nonresident throughout that period). Separate automatic nonresidence rules may apply if the taxpayer dies in the tax year.
An individual coming to the UK is likely to be regarded as conclusively UK resident if he or she does not meet any conditions to be regarded as conclusively UK nonresident (see above) and satisfies any of the following conditions:
- He or she spends at least 183 days in the UK in the UK tax year.
- He or she works sufficient hours (at least 35 hours per week on average) in the UK, assessed over a 365-day period, with more than 75% of his or her workdays being UK workdays (full-time working in the UK, or FTWUK).
- He or she has his or her only home or all his or her homes in the UK, for a period of at least 91 consecutive days, and at least 30 days of the 91-day period fall in the UK tax year concerned.
- He or she meets the sufficient ties test.
Particular rules apply to individuals who have relevant jobs in international transport, such as air crew. These rules exclude them from the FTWA and FTWUK tests.
For an individual who is neither conclusively resident, nor conclusively nonresident, a sufficient ties test applies under the SRT. The sufficient ties test looks at the number of connection factors that the individual has with the UK and the number of days spent in the UK. Five possible connection factors can apply to determine the extent of the individual’s connection to the UK; the more connection factors that an individual has, the fewer days he or she may spend in the UK in a tax year without becoming UK tax resident. The following are the five possible connection factors that an individual may have:
- He or she has a UK substantive employment (at least 40 UK workdays, as defined).
- He or she has UK accommodation (as defined).
- He or she has more than 90 days present in the UK in either of the preceding two UK tax years.
- He or she has UK-resident family (spouse, civil partner or minor children).
- He or she has been UK tax resident in any one or more of the three preceding UK tax years and has not spent more days in any single country than he or she has spent in the UK.
After the number of connection factors is determined, this is compared with the number of days of presence in the UK. For example, under the sufficient ties test, an individual who has not been tax resident in the UK in any one of the preceding three tax years does not become a UK resident in the following circumstances:
- He or she is present up to 120 days in the UK and has no more than two connection factors.
- He or she is present up to 90 days in the UK and has no more than three connection factors.
Complex statutory definitions apply in all cases. For example, a day is usually counted as a day of presence if the individual is in the UK at midnight, but an additional anti-avoidance rule can also apply if the individual has three UK connection factors, has been UK tax resident during any of the preceding three UK tax years and has more than 30 days in the UK when he or she is in the UK during the day but absent at midnight (see Days present in the UK). A UK workday is defined as a day on which more than three hours of work is undertaken in the UK and includes both training and traveling undertaken in the performance of employment duties.
Abolition of ordinary residence. Before the introduction of the SRT, the UK had a concept of ordinary residence that applied for income tax and capital gains tax purposes. However, this concept has been abolished, and transitional rules, which applied to certain individuals who were resident but not ordinarily resident in the UK as at 5 April 2013, have now lapsed.
Overseas workdays’ relief. For UK tax residents who are non-domiciled and were outside the transitional rules of not ordinarily resident status alluded to above, a form of overseas workdays’ relief may be available on their employment income if they have been nonresident for UK tax purposes throughout the preceding three UK tax years, if the remittance basis is claimed and if the remuneration related to those overseas workdays is both paid and retained offshore (for further details, see Remittance basis). If overseas workdays’ relief applies, the income relating to the overseas workdays is excluded from UK taxation so long as it is not brought to the UK.
Overseas workdays’ relief is likely to apply to the UK tax year in which the individual first becomes UK tax resident and to the two subsequent UK tax years. The law does not prevent an individual from being entitled to overseas workdays’ relief on several different assignments to the UK. However, unless he or she is nonresident in the UK for at least three full UK tax years between assignments, the period over which relief may be claimed is likely to be restricted.
Split-year position. In principle, residence is determined for a tax year as a whole, but under the SRT a taxpayer who is UK tax resident may be eligible for split-year treatment in certain circumstances. If the conditions are met, income and gains of the overseas part of the UK tax year concerned are generally not subject to UK tax. An individual arriving in the UK who would otherwise be UK tax resident all year may qualify for split-year treatment in any of the following five circumstances:
- The individual starts to have his or her only home in the UK.
- He or she starts to work full time in the UK.
- He or she returns from working full time abroad, having been UK tax resident in one or more of the four tax years immediately preceding the previous UK tax year.
- He or she is an accompanying spouse or civil partner of someone who is returning from working full time abroad, as described above.
- He or she starts to have a home in the UK and did not previously have a UK home.
If more than one of the above circumstances applies, an ordering rule typically applies the test that minimizes the overseas part of the tax year and begins taxation as a UK resident from the earliest possible date.
In addition, in any of the following three sets of circumstances, someone leaving the UK may qualify for split-year treatment:
- The individual leaves the UK for FTWA.
- He or she is an accompanying spouse of someone who is leaving the UK for FTWA.
- He or she is leaving the UK permanently and will not have a home in the UK after departure.
If more than one of the above circumstances applies, the date of the beginning of the overseas part of the tax year is determined in the following order of priority:
- Accompanying spouse rule
- Test based on ceasing to have a UK home
Individuals may also need to look at their residence position for the previous and subsequent tax years as part of the split-year conditions. Consequently, professional advice should be obtained if relevant.
Domicile. Under English law, an individual’s domicile is the country considered to be his or her permanent home, even though he or she may be currently resident in another country. It may be a domicile of origin, choice or dependency. Under English law, every person is born with a domicile of origin, which is normally that of his or her father. A domicile of origin has great tenacity. Consequently, individuals who were never domiciled in the UK and who work there for limited periods normally have no difficulty in proving that they are not domiciled in the UK.
Effective from 6 April 2017, individuals who are non-UK domiciled will be deemed to have a UK domicile for income tax purposes if they have been resident in the UK for more than 15 out of the past 20 tax years. In addition, if an individual with a UK domicile of origin has acquired a non-UK domicile of choice, it is currently possible for him or her to maintain that non-UK domicile of choice in the event that he or she returns to the UK for a limited period. Effective from 6 April 2017, such individuals will be deemed to be domiciled in the UK from the date on which they return. If such individuals have returned to the UK before 6 April 2017, they will be deemed domiciled from that date.
Domicile status affects how an individual’s offshore income and/ or capital gains are taxed. A non-UK-domiciled individual can have his or her offshore income and/or offshore capital gains taxed on either of the following bases:
- Remittance basis
- Arising basis
An individual who is taxable on the arising basis is subject to UK tax on his or her worldwide income and capital gains, regardless of where they arise. For further details regarding the remittance basis, see Remittance basis.
Days present in the UK. Effective from 6 April 2008, any day on which the individual is present in the UK at midnight is considered a full day of presence in the UK for residence purposes. Days in transit may be excluded from the count if the individual does not perform any activities in the UK that are unrelated to the transit. In some cases, up to 60 days that were spent in the UK as a result of exceptional circumstances that were not anticipated and were outside the taxpayer’s control may be disregarded in calculating total days of presence.
An anti-avoidance rule, effective from 6 April 2013, applies to taxpayers who have three or more connection factors under the SRT and who were UK tax resident in at least one of the preceding three UK tax years. If an individual spends more than 30 days in the UK on which the individual is not also present in the UK at midnight, each subsequent day spent in the UK (above 30) for which the taxpayer is absent at midnight is counted as a day of UK presence for all of the day-count tests applied under the SRT. However, this anti-avoidance rule does not apply to individuals who meet the criteria for FTWA (see above).
Remittance basis. An individual who is taxed on the remittance basis can potentially keep certain of his or her foreign income and gains outside the scope of UK tax by having them paid offshore and not subsequently remitting them to or enjoying them in the UK. “Remittance” is widely defined to include direct and indirect remittances, and professional advice should be taken as necessary to determine when the remittance basis may be claimed.
Up to 5 April 2013, the remittance basis was available to the following individuals:
- Resident but not ordinarily resident individuals
- Resident individuals, whether or not ordinarily resident, who were non-UK domiciled
Following the abolition of ordinary residence (see Abolition of ordinary residence), effective from the 2013–14 tax year, the remittance basis is available to resident but non-UK-domiciled individuals only.
Effective from 6 April 2008, the default position is that nearly all residents are subject to UK tax on worldwide income and gains (known as the “arising basis”). Individuals who qualify and wish to be taxed on the remittance basis must normally claim to be taxed on this basis. Individuals who claim the remittance basis lose the tax-free personal tax allowance for income tax (in any event, this allowance is subject to phaseout for individuals with income in excess of GBP100,000 in the tax year; see Personal allowance) and also lose the annual exemption for capital gains tax (CGT) for that tax year. In addition, individuals who have been resident in at least seven of the preceding nine UK tax years must pay an additional remittance basis charge (RBC) of GBP30,000 for each year for which the claim to be taxed on the remittance basis is made. The charge is increased to GBP60,000, effective from 6 April 2015, for individuals who have been resident in the UK in at least 12 of the preceding 14 UK tax years. It is increased further to GBP90,000, effective from 6 April 2015, for individuals who have been resident in the UK in at least 17 of the preceding 20 UK tax years. Under government proposals likely to become law from 6 April 2017, individuals resident in the UK in at least 15 of the preceding 20 UK tax years will no longer be able to access the remittance basis and the 17-out-of20-year RBC, which can currently apply, will be abolished.
However, the remittance basis currently applies without a formal claim if non-domiciled residents satisfy the following de minimis conditions:
- Their total unremitted offshore income and gains in the UK tax year amount to less than GBP2,000 (if a taxpayer is eligible for split-year treatment, this limit applies to the UK-resident part of the tax year only, so that any unremitted offshore income and gains for the overseas part of the tax year are ignored; only income and gains related to the UK part of the split tax year count toward the GBP2,000 limit).
- They have not made any remittances of “relevant income or gains” to the UK, have been resident in the UK in no more than six out of the preceding nine UK tax years (or they are under 18 throughout the tax year), and their only UK-source income is investment income that has been taxed at source of no more than GBP100.
“Relevant income or gains” are the individual’s foreign income and gains for that tax year as well as foreign income and gains for every previous tax year to which the remittance basis applied.
If the remittance basis applies without a formal claim, the individual does not lose the tax-free personal tax allowance for income tax (assuming his or her gross income is below the phaseout level; see Personal allowance) or the annual exemption for CGT for that tax year.
Income and gains that may be taxed on the remittance basis include the following:
- Earnings paid outside the UK and attributable to workdays outside the UK if the individuals are eligible to claim overseas workdays’ relief (see Overseas workdays’ relief)
- Earnings from a separate employment with a non-UK-resident employer if the duties are performed wholly outside the UK (however, under an anti-avoidance law, effective from 6 April 2014, remuneration from many such contracts are typically taxed on the arising basis instead)
- Most common forms of investment income arising from assets or funds based outside the UK
- Capital gains arising from the disposal of assets located outside the UK
Organizing bank accounts. If the remittance basis applies, special rules identify the source of funds remitted to the UK in a specific order from a so-called “mixed fund.” A “mixed fund” is a fund that contains monies from different sources, such as employment income, investment income, capital gains and “clean capital,” or income or gains of more than one UK tax year. If monies are remitted to the UK, the following order applies in determining what has been brought to the UK:
- Employment income that has already been taxed in the UK
- General foreign earnings (for example, earnings relating to overseas workdays) that have not been subject to foreign taxes
- Specific foreign employment income (such as income derived from certain share incentives) that has not been subject to foreign taxes
- Foreign-investment income that has not been subject to foreign tax
- Foreign chargeable gains that have not been subject to foreign tax
- Employment income that has been subject to foreign tax
- Foreign-investment income that has been subject to foreign tax
- Foreign chargeable gains that have been subject to foreign tax
- Income or capital (including income or capital already taxed in the UK) not contained in the above categories, including underlying capital, such as preresidence earnings, investment income and capital gains
If possible, offshore accounts containing segregated funds (for example a separate account to hold proceeds from the disposal of assets chargeable to CGT) should be organized to avoid the complications of the mixed fund rules.
A law, which took effect on 6 April 2013, allows a taxpayer to nominate a particular offshore account that meets certain conditions to be a “qualifying mixed fund account.” The law restricts the types of income that the account may contain. Although the account may be held in joint names, only one of the account holders may contribute to it. Accounts that do not contain current-year employment income that is a mixture of UK-source earnings and earnings that are eligible for overseas workdays’ relief are not eligible for nomination. A taxpayer may have only one nominated bank account at one time and details of that nominated account must be provided to HMRC.
For most bank accounts, an analysis of what has been brought to the UK with each remittance must be made on a transactionby-transaction basis. For nominated bank accounts only, the analysis may be undertaken at the end of the UK tax year on the basis of cumulative figures for the year if all of the necessary conditions are met.
As a result of the complexities of the remittance basis and the mixed fund rules, and the potential interaction with double tax treaties, professional advice should be sought from the outset.
Income subject to tax. The taxation of various types of income is described below.
Employment income. An employee is prima facie taxed on all remuneration and benefits from employment received during a tax year. The UK tax year ends on 5 April. An employee is taxable not only on basic salary but also on most perquisites or benefits in kind, including company cars, meals, accommodation, tuition for dependent children, medical insurance premiums and imputed interest on loans below market rates. Employer-paid education expenses for employees and life insurance premiums may be taxable in certain circumstances. Education allowances provided by employers to their expatriate and local employees’ children are taxable for income tax and social security purposes. However, contributions by an employer to a UK-registered pension scheme are normally not taxed if prescribed limits are not exceeded (see Pensions).
All salaries, fees and benefits in kind earned by directors are taxable as employment income. Individuals who are resident are taxed on their worldwide employment income. However, nonUK-domiciled individuals may be taxed on the remittance basis if they elect to be taxed on the remittance basis or if the remittance basis applies without a claim (see Remittance basis). As a result, remuneration for duties performed outside the UK, such as income relating to overseas workdays, may potentially escape UK tax altogether if it is paid offshore and not subsequently remitted to or enjoyed in the UK. However, as explained above, overseas workdays’ relief is only normally available for the UK tax year in which tax residence is established and the two subsequent UK tax years. Earnings derived by non-UK-domiciled individuals from UK duties are taxable in the UK regardless of whether the arising or remittance basis applies.
As explained above, from 6 April 2013, a new form of overseas workdays’ relief is potentially available (see Overseas workdays’ relief).
Remuneration from certain specific employment contracts for non-domiciled individuals with non-UK employers under which no duties of the employment are performed in the UK may also be taxable on the remittance basis, but following the reform of the related law, effective from 6 April 2014, additional conditions must be met, which means that income from such contracts is much more likely to be taxable as it arises.
Individuals who are resident are taxed on their employment income for the year. However, some individuals may qualify for “split-year” treatment under which the employment income relating to periods before and after their UK employment and assignment can be excluded from UK taxation (see Split-year position).
Individuals who are nonresident in the UK are taxed on their earnings from UK employment duties only.
If employment income that is earned during a period of UK residence is paid when the individual is nonresident, the employment income remains taxable as though the individual is resident. It is the resident status of the employee when the individual earns the income that determines the taxability of the earnings and not the residence status of the employee at the time of payment unless HMRC has specifically agreed to the use of an alternative “cash basis” for tax-equalized employees.
If all of the conditions are satisfied, a double tax treaty may grant an exemption to exclude certain types of employment income from UK taxation for employees who are resident in another contracting state for the purpose of the treaty (see Section E).
Tax is normally deducted from employment income at source under the Pay-As-You-Earn (PAYE) system (see Section D).
Self-employment income. Self-employment income includes income from a trade, profession or vocation. Whether a person is considered to be employed or self-employed is determined by the individual’s particular circumstances and as a matter of fact.
Tax is charged on the profits or gains of trades, professions and vocations carried out wholly or partly in the UK by UK residents.
A nonresident individual is charged on any business exercised in the UK, or on the part of the trade carried on in the UK if the trade is carried on partly in the UK and partly overseas. A business carried out wholly overseas by a UK-resident individual is regarded as foreign income and, consequently, may be taxed on the remittance basis if the individual is eligible and claims the remittance basis.
For tax purposes, profits are usually determined in accordance with normal accounting principles, but adjustments may be necessary.
A self-assessment system applies, which means that self-employed individuals are generally taxed on the business profits earned during an accounting period ending in the current tax year.
Investment income. For tax years up to and including the 2015–16 tax year (ended 5 April 2016), income from most investments in the UK was received after tax was withheld or paid at source wholly or in part. Effective from 6 April 2016, a new regime applies.
For UK dividends, the tax credit regime that previously applied has also been abolished, effective from 6 April 2016. Instead, taxpayers are potentially entitled to a dividend allowance of up to GBP5,000, so that up to the first GBP5,000 of dividend income received in the tax year is effectively taxed at 0%. For dividends in excess of the allowance, the following rates apply:
- 5% for basic rate taxpayers
- 5% for higher rate taxpayers
- 1% for additional rate taxpayers
Although the first GBP5,000 of dividend income is tax-free, it is still taken into account in determining the taxpayer’s marginal tax rate and any entitlement to the personal savings allowance, as explained below.
Effective from 6 April 2016, a new personal savings allowance applies for other investment income such as bank interest.
UK banks and building societies are no longer required to deduct basic rate tax at source from any interest income paid by them. The personal savings allowance is set at GBP1,000 for basic rate taxpayers and GBP500 for higher rate taxpayers. It is not a deduction from taxable income, but it is effectively an amount of savings income that may be taxed at 0%. Additional rate taxpayers (individuals with taxable income in excess of GBP150,000) are not entitled to a savings allowance.
Investment income in excess of the savings allowance is subject to income tax at the taxpayer’s marginal tax rate. See Rates for further details.
Any income from UK leased property is taxed as income at the applicable marginal rate of the taxpayer (see Rates). Leasing agents for nonresident landlords should withhold the basic tax rate of 20%, unless HMRC issues a direction to them authorizing gross payment to the landlord. Income tax on property income is charged on the net profit from rentals after deduction of qualifying expenses, such as repairs and maintenance but not deprecition, which is not a qualifying expense for UK tax purposes. Currently, mortgage interest paid is a fully deductible expense, but this deduction will be phased out over the next three UK tax years, starting from 6 April 2017, so that from 6 April 2020, it will no longer apply. An alternative deduction that will be limited to a maximum of basic rate tax relief on the disallowed mortgage interest will apply instead.
The net profit is calculated in accordance with UK rules even if the rental income arises from foreign leased property and is taxed on the remittance basis. A 10% wear-and-tear allowance that was allowed as a standard deduction on property that was leased furnished is abolished, effective from 6 April 2016. Going forward, a deduction may be claimed instead for actual expenditure on replacement of furniture and fittings used in a property income business.
UK domiciled and resident individuals are usually liable to UK tax on their worldwide investment income.
Nonresident individuals are liable to UK tax on their investment income from UK sources only, regardless of their domicile status.
Individuals who are not domiciled but are resident in the UK are also usually liable to UK tax on investment income from UK sources. However, they may claim to have their investment income from any non-UK-source income taxed on the remittance basis so that they are taxed on their investment income from any non-UK sources only to the extent that it is remitted to or enjoyed in the UK.
If all the conditions are satisfied, a double tax treaty may grant an exemption to exclude certain types of investment income from UK taxation for individuals who are resident in the other contracting state for purposes of the treaty (see Section E).
Stock options and share-based incentive schemes. Detailed, complicated legislation applies to the taxation of share incentives provided to employees by their employers. The legislation applies to “securities,” which includes, but is not limited to, shares in the employer company. The application depends on the specific plan rules. As a result, professional advice should be taken on the implications of this law in any particular case. The following discussion is for general guidance only.
The UK introduced a reform of the law that governs the taxation of certain equity-based compensation for internationally mobile employees, which is effective from 6 April 2015. The new regime applies to all chargeable events, including awards vesting or being exercised, occurring on or after 6 April 2015 and generally seeks to tax the proportion of any award attributable to periods of UK tax residence, together with any amounts attributable to UK work during periods of nonresidence. The regime described below applies to all awards if the taxable event occurs on or after 6 April 2015, regardless of the original date of grant.
Another amendment to the regime is effective from 6 April 2016. This amendment also applies to all taxable events on or after that date. The effect of the change is that any right to acquire securities is likely to be taxed under the securities options law, regardless of whether it has the form of a securities option.
Unapproved employee share option schemes and restricted stock units. Unapproved employee share options are not taxed on grant, but when the chargeable event occurs. This is usually when the option is exercised but may include other events, such as the settlement in cash of the option by the employer, rather than the exercise of the option to acquire shares.
Under the new law, any rights to acquire securities are likely to be taxed as employment-related securities options on exercise of the option or, for other rights to acquire, such as restricted stock units, when the employee becomes entitled to the award. The UK taxable proportion of the award is calculated by allocating the award to the UK tax years over which it was earned and apportioning the income by tax year between UK and non-UK elements. Any parts that are not attributable either to periods of UK residence or to UK workdays are excluded from UK tax. If employees are entitled to overseas workdays’ relief, they may also be eligible for a form of overseas workdays’ relief with respect to their overseas workdays during UK-resident periods. It may also be possible to rely on a double tax treaty to limit the UK’s right to tax amounts attributable to non-UK duties if the employee is treaty nonresident in the UK at the time of the chargeable event.
The employer must withhold income tax on chargeable events, such as exercise, in most circumstances.
The social security position is more complex. However, for employees who are within the scope of UK social security, it is possible for employers to enter into agreements with their employees to pass on the secondary (or employer’s) social security liability to the employee. Under the agreement, the employee pays any employer-owed social security contributions due on the exercise of the option; the employee may then deduct the contributions paid when calculating the amount of the gain liable to UK income tax. This treatment is available only if the social security liability arises on or after 28 July 2000. A similar agreement can be made in respect of awards of restricted stock if a UK social security charge arises on awards made on or after 1 September 2004.
If awards of shares are made, rather than share options, the value of the shares awarded to an employee is usually subject to income tax and social security contributions (if applicable) on the date of the award. The position may be more complex if shares are restricted and at risk of forfeiture. In this case, the liability is usually deferred until the restrictions lift, assuming this happens within five years of the grant. Employers and employees can instead jointly make elections so that the taxes on the award are charged upfront on the value ignoring the restrictions. This is an extremely complex area, and professional advice should be obtained in all cases.
For the purpose of any treaty apportionment, share-option income is typically sourced from grant to vesting, assuming that the individual remains in employment throughout this period. By exception, the UK continues to apply a grant-to-exercise sourcing period for gains under its treaties with Japan and the United States.
In all the above cases, the law is complex, and professional advice should be obtained.
Tax-advantaged employee share schemes. The UK currently has several employee share schemes that can have tax-advantaged status. Income from tax-advantaged schemes that is realized in an approved manner is usually not subject to income tax or to National Insurance contributions. Tax-advantaged plans include, among others, the Company Share Option Plan, the Save As You Earn (SAYE) Share Option Scheme, the Share Incentive Plan (formerly the All Employee Share Ownership Plan) and the Enterprise Management Incentives. Each plan has different characteristics and is consequently relevant to particular employer and employee circumstances. The advantage of these schemes over unapproved schemes is that they generally put employer shares into the hands of employees free of income tax and National Insurance. The principal disadvantage is that the value of awards that may be made to employees is limited.
CGT on employee share schemes. CGT may be due if the shares acquired from employee share schemes are sold and if the employee is within scope of CGT at the time (broadly, if he or she is resident or only temporarily nonresident). In general, the underlying shares acquired from tax-advantaged schemes are still subject to capital gains tax when they are sold. However, shares in a Share Incentive Plan subject to a minimum holding period may be exempt from UK CGT on disposal.
For shares acquired from the exercise of options, the base cost of the shares sold for UK capital gains tax purposes is increased by the amount of any income that was subject to UK income tax at exercise.
Pensions. In terms of UK tax treatment, pension schemes may broadly be divided into the following three groups:
- UK registered pension plans and international equivalents
- Unapproved (for UK-tax) pension schemes
- Wholly unfunded schemes
UK-registered plans. No limit is imposed on the absolute amount that may be contributed to UK-registered pension schemes, but an annual allowance charge applies to restrict the tax relief available if the contributions or increase in accrual in the pension input period (PIP) ending in a tax year exceeds the permitted annual allowance. For UK-registered schemes, it was possible for tax years up to and including the 2015–16 tax year for the PIP to end on a chosen date, nominated by the pension scheme administrator (or in the case of money purchase arrangements only, either the pension scheme administrator or the individual scheme member). For the 2016–17 tax year (beginning 6 April 2016) and future years, all PIPs are aligned with the UK tax year.
Pension inputs are determined for a defined contribution scheme by adding together any employer and employee contributions and, for a defined benefit scheme, by multiplying the inflation-adjusted increase in the accrued annual pension value over the course of the tax year (effective from 6 April 2016) by a factor of 16 to arrive at the value by which the fund is deemed to have increased over that period. The total of the pension inputs to all relevant pension schemes for a particular individual is measured against his or her annual allowance for the relevant tax year, and any excess is subject to an annual allowance charge at his or her marginal income tax rate.
Effective from 6 April 2011, the annual allowance was limited to GBP50,000. However, this was decreased to GBP40,000, effective from 6 April 2014. Effective from 6 April 2016, a further restriction applies so that for anyone with UK taxable income (as adjusted) of at least GBP150,000, the annual allowance is reduced by GBP1 for every GBP2 over the income limit, subject to a minimum allowance of GBP10,000. Any unused annual allowances from the preceding three UK tax years may be carried forward to offset any excess pension inputs in the 2016–17 tax year.
An overall limit is imposed on the maximum amount that may be saved tax efficiently over a lifetime, known as the lifetime allowance. For the 2011–12 tax year, this was set at GBP1,800,000. However, it was reduced to GBP1,500,000, effective from 6 April 2012, and was reduced further to GBP1,250,000, effective from 6 April 2014. Effective from 6 April 2016, it is further reduced to GBP1 million. The level of pension saving is tested against the lifetime allowance if a benefit crystallization event occurs, such as the employee beginning to draw a pension, and a lifetime allowance charge is levied if the lifetime allowance is exceeded. Transitional measures may allow some individuals to retain a lifetime allowance up to GBP1,500,000.
International equivalents. Non-UK schemes that the UK law regards as being like a UK scheme are subject to a similar regime to the one described above, but with slightly different rules. For example, for non-UK schemes, by law, the PIP has always been the UK tax year. The following four types of schemes may fall within this group:
- Schemes for which Migrant Member Relief (MMR) has been claimed.
- Schemes for which transitional corresponding acceptance (TCR) has been claimed.
- Schemes for which tax relief on contributions has been claimed under an appropriate double tax treaty.
- Overseas pension schemes (as defined) with employer contributions that are not taxable on the employee because the scheme provides only death and retirement benefits. In very broad terms, an overseas pension scheme is usually one that is subject to a system of regulation in the country in which it is established and that is open to local residents in that country.
For any of the above schemes, employer contributions are also usually deductible for corporation tax purposes. However, for the employee personally, tax relief for total pension inputs are subject to the annual allowance and lifetime allowance limits described above. In addition, if after leaving the UK and not having been nonresident for a period of five complete UK tax years, an employee draws UK tax-relieved benefits from his or her pension scheme in a form that would not be permitted for a UK-registered pension scheme, an unauthorized payment charge may apply.
Other pension schemes. Other schemes that are neither UK-registered schemes, nor deemed in law to be of the same type as UK-registered schemes, are typically subject to tax under the UK’s “disguised remuneration” regime, unless they can be shown to be wholly unfunded. This usually means that if any contributions made to such a scheme are with respect to, or otherwise earmarked for, an employee, the employee must be taxed on the contributions through PAYE at the time of contribution.
Wholly unfunded schemes. Wholly unfunded schemes are usually outside the disguised remuneration rules. However, an extended definition of funding for this purpose is provided. Under this definition, if, for example, the employer provides an asset as security for the scheme, this is usually regarded as providing funding for the scheme.
The law with respect to pension schemes in the UK is extremely complex. As a result, specific advice should be obtained in all cases.
Capital gains tax. An individual who is resident and domiciled in the UK is taxed on gains arising on disposals of assets located anywhere in the world. However, an individual who is resident but not domiciled in the UK and who elects to be taxed on the remittance basis for that year is taxed on disposals of overseas assets only if the proceeds are remitted to the UK (see Remittance basis in Section A). In this case, the gain element of the sale proceeds is regarded as being remitted ahead of the capital. All individuals who are subject to UK capital gains tax (CGT) are entitled to an annual CGT exemption, but this is lost if the remittance basis is claimed.
An individual who is nonresident is not normally subject to UK CGT (however, see Years of departure and arrival, and temporary nonresidence rule and Disposal of UK residential property by nonresidents).
Years of departure and arrival, and temporary nonresidence rule. Effective from 6 April 2013, individuals who leave the UK during the year, who are considered resident before departure and who qualify for split-year treatment under the SRT are not normally chargeable to CGT on gains realized in the nonresident part of the tax year. However, individuals who, on departure, had been resident in the UK for four out of seven of the preceding UK tax years remain subject to “temporary nonresidence” rules if their period of absence from the UK does not last for at least five years.
If the temporary nonresidence rules apply, gains arising on the disposal of assets owned before the period of temporary nonresidence that are sold during the period of temporary nonresidence are subject to CGT in the UK tax year in which the taxpayer returns to the UK and resumes tax residence (year of arrival). Gains on the disposal of assets acquired in a period of nonresidence and sold while the individual is still nonresident are not subject to UK CGT. Likewise, individuals who arrive in the UK during the year, who are considered resident, who are eligible for split-year treatment and who are not subject to temporary nonresidence rules are normally taxed only on gains realized after the date on which they are treated as becoming UK tax resident under the split-year provisions.
Taxpayers who left the UK before 6 April 2013 but who return to the UK before a period of five complete UK tax years elapses are subject to the temporary nonresidence regime as it applied before the SRT on their return to the UK. They should obtain specific advice regarding this law, as necessary.
Reliefs. Various reliefs are available for CGT. The most common relief is main residence relief, which exempts all or part of a gain that arises on a property that an individual has used as his only or main home, if certain conditions are met.
Entrepreneurs’ relief is a relief available to taxpayers who sell or give away their businesses. This relief aims to reduce the rate of CGT on qualifying disposals to 10%. Gains are eligible for entrepreneurs’ relief up to a maximum lifetime limit, which is currently GBP10 million.
Many other reliefs are available, including rollover relief for disposals of certain business assets.
Foreign currency. Foreign currency is generally a chargeable asset for CGT purposes unless it is acquired for specific personal use outside the UK. However, currency gains on cash balances held in a non-sterling bank account are also specifically excluded from CGT by law, effective from the 2012–13 tax year.
Annual exemption. The annual exemption for the 2016–17 tax year is GBP11,100. This exemption is forfeited if a claim for the remittance basis is made for the tax year.
Rates. For gains realized on all disposals other than those realized on residential property disposals made during the 2016–17 tax year, a 10% rate applies to chargeable gains that fall within the individual’s basic rate band limit, after taking into account income as calculated for income tax purposes (see Rates below). Chargeable gains in excess of the basic rate band are charged at a rate of 20%. For gains on residential property, the applicable rates are 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.
Capital losses. Capital losses can be automatically deducted from capital gains in the same year. Any allowable unused capital losses may be carried forward indefinitely to relieve future gains. Losses realized by non-domiciled taxpayers who have claimed the remittance basis are not normally regarded as capital losses except in the circumstances discussed below.
Effective from 6 April 2008, for individuals who elect to be taxed on the remittance basis, capital losses from the disposal of assets not located in the UK cannot be offset against chargeable gains in the UK, unless they make an election. The election potentially allows individuals to claim relief for capital losses on the disposal of any assets not located in the UK. However, the election would require them to track and possibly disclose the details of their worldwide capital transactions to HMRC. Any losses from the disposal of assets located in the UK are first offset against any unremitted foreign gains in preference to any UK gains, thereby increasing the amount of UK CGT payable. As a result, this election might not be beneficial if an individual has significant UK gains and losses.
The election must be made with respect to the first tax year in which individuals are claiming the remittance basis of taxation after 6 April 2008, regardless of whether they have any capital losses arising in that year. The election is irrevocable after it is made.
Disposal of UK residential property by nonresidents. The UK introduced a CGT charge applying to the disposal of UK residential property by nonresidents, which is effective from 6 April 2015. UK residential property includes any interest in UK land or buildings that, during the period of ownership, has either consisted of a dwelling or is an off-plan purchase on which a dwelling is to be built (a contract for an off-plan purchase is a contract for the acquisition of land consisting of, or including, a building or part of a building that is to be constructed or adapted for use as a dwelling).
The charge under this regime applies to disposals on or after 6 April 2015 without any transitional provision. However, the taxpayer may choose one of three alternative methods to reduce the chargeable gain with respect to any part of the gain attributable to the period before 6 April 2015 if the property was acquired before that date. Any nonresident individuals who dispose of UK residential property need to file a NRCGT return within 30 days after the conveyance, regardless of whether tax liability exists. However, individuals who are already in self-assessment system (see Section D) do not normally need to compute the tax liability arising or include a computation of any gain or loss within that time frame. Penalties for late filing and late payment apply, and further professional advice should be taken as necessary.
Deductible expenses. Under general rules, a deduction in determining taxable earnings is allowed for any amount if it is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. The rule relating to what is regarded as “necessary” in the performance of the duties of employment is very tightly drawn.
Special rules relate to various items, including, but not limited to, travel and subsistence, relocation and overseas medical costs. The following are the common types of deductions and exemptions:
- Travel and subsistence costs incurred when an employee works at a temporary workplace (that is, a workplace where an employee expects to work for no longer than 24 months and such period does not form all or nearly all the employment period)
- The cost of employee and family return trips home (subject to certain limitations with respect to the duration of claim and family trips; a non-UK-domiciled individual who performs employment duties in the UK is eligible to claim home-leave expenses with respect to his or her family for qualifying journeys that are completed within five years of the date of his or her arrival in the UK)
- Qualifying relocation expenses of up to GBP8,000
- Work-related training (for employees only)
- Professional subscriptions
- Business mileage allowance for using an employee’s private car to travel in the performance of employment duties
- Overseas medical costs (for UK employees on foreign assignment)
Certain conditions may need to be satisfied before the above expenses can be claimed as deductions. As a result, professional advice should be sought before making these claims.
Personal allowance. UK-resident taxpayers are normally entitled to an annual tax-free personal allowance. The amount is GBP11,000 for the 2016–17 tax year. Each individual has his or her own personal allowance. In addition, if an individual is tax resident for only part of the UK tax year, he or she will nevertheless receive his or her full annual tax-free personal allowance. However, effective from 6 April 2010, the personal allowance is reduced by GBP1 for every GBP2 of “adjusted net income” over GBP100,000. Consequently, individuals with “adjusted net income” of GBP122,000 or more do not receive any personal allowance for the 2016–17 tax year.
In addition, as mentioned in Remittance basis, an individual who claims the remittance basis loses his or her personal allowance unless the remittance basis applies without a claim. In this circumstance, the personal allowance may, in some cases, be reinstated as a result of the specific provisions of a double tax treaty (see Section E), but typically remains subject to the phaseout because of income levels. Not all treaties contain the necessary provisions. Consequently, professional advice should be sought if an individual is considering this option.
Nonresident individuals are generally entitled to a UK personal allowance (subject to the same income phaseout) if they satisfy either of the following conditions:
- They are nationals of a member country of the European Economic Area (EEA). This condition may be amended as a result of the UK leaving the EU. This will not be for about two years and may be longer.
- They are entitled to the allowance under specific double tax treaty provisions that cover personal allowances.
Individuals aged 65 or older in the tax year may be entitled to a higher rate of the personal allowance.
Married couples also qualify for the married couples allowance if one or both of the spouses were born before 6 April 1935. The maximum amount of this allowance is GBP8,355, depending on the taxpayers’ age and income. This relief may be taken only at a rate of 10%. In some circumstances, married couples who pay tax at no more than the basic rate may also be able to transfer the unused personal allowance to their spouse or civil partner.
Relief for alimony and maintenance payments may be available if an individual or his or her ex-spouse was born before 6 April 1935 and if certain other conditions are met.
Business deductions. Expenses incurred for a trade, profession or vocation are generally only available as deductions in determining taxable profit or allowable loss if they are incurred wholly and exclusively for the purpose of the trade, profession or vocation. In addition, certain types of expenses are not allowed as deductions. These include the following:
- Entertainment and gifts (except for certain inexpensive gifts bearing conspicuous advertising)
- Depreciation, other than capital allowances
- Nonbusiness expenses or the private-use proportion of expenses
- Costs of a capital nature
- Profits or capital withdrawn from the business
Although deductions for depreciation and expenditure of a capital nature are not allowed, deductions in the form of capital allowances (tax depreciation) may be available.
Rates. The following are the income tax rates for the 2016–17 tax year.
|Taxable income||Tax rate||Tax due||Cumulative tax due|
Effective from 6 April 2016, certain tax-raising powers are devolved to the Scottish parliament, whereby the headline UK tax rate applying to income for Scottish taxpayers is reduced by 10 percentage points, compared with the tax rates applicable in the remainder of the UK. The Scottish parliament has the power to apply a Scottish rate of income tax, which has been set at 10% for the 2016–17 tax year. As a result, for at least the 2016–17 tax year, Scottish tax rates remain on a par with those applying in the remainder of the UK. The Scottish rate of income tax does not apply to savings and dividend income.
Relief for losses. The most common types of losses are trading losses, property losses and capital losses.
Trading losses. Trading losses may be offset against a taxpayer’s total taxable income. The taxpayer may choose to offset the loss in the year in which the loss is incurred and/or in the preceding year. If the current year loss cannot be fully offset against the current or preceding year trading income, the balance can be used to offset capital gains for that year (after the current year capital loss has been used). For married couples, losses may be offset only against the income of the spouse incurring the loss. Special rules provide for the carryback of losses incurred in early trading years. In addition, a taxpayer may carry forward unused trading losses to offset future income from the same trade. Special rules apply at the cessation of an individual’s trade or business.
Property losses. If an individual has more than one rental property, all profits and losses from properties that are leased commercially in the tax year are pooled together to give an overall profit or loss for the year. Special rules can apply to properties leased at less than a commercial rent and to furnished holiday leases. Typically, other property losses can be carried forward and offset against property income from a UK property business in future tax years. A property loss may not be carried back to a previous tax year.
Capital losses. For details regarding capital losses, see Capital gains tax.
Taxes on property. The UK levies various taxes on UK property depending upon several factors, including the type of property, its value and the person acquiring and owning the property.
Stamp duty land tax. Stamp duty land tax (SDLT) is a tax on land transactions involving the acquisition of any estate, interest, right or power in or over land in the UK, except for Scotland. Since 1 April 2015, land transactions in Scotland have been subject to Land and Buildings Transaction Tax (LBTT). For details regarding LBTT, see Land and Buildings Transaction Tax.
The applicable rate varies according to the type of property (residential, commercial or mixed-used property) and the value of the property acquired.
The following are the SDLT rates for residential property.
|Property, lease premium or transfer value||Rate (%)|
|Up to GBP125,000||0|
|The next GBP125,000||2|
|The next GBP675,000||5|
|The next GBP575,000||10|
|Portion above GBP1,500,000||12|
Effective from 1 April 2016, higher rates of SDLT are imposed on purchases of “additional residential properties,” such as buyto-lease properties and second homes, for which the value is equal to or greater than GBP40,000. The higher rates are 3% above the current SDLT rates. The higher rates do not apply to purchases of caravans, mobile homes or houseboats, or to corporations or funds making “significant investments” in residential property. They also do not apply if the property purchased by an individual is a replacement for the purchaser’s only or main residence.
A flat rate of 15% may apply for properties acquired by a “non-natural person.” A “non-natural person” can be broadly defined as a company, a partnership with a corporate partner, or a collective-investment scheme.
The following are the SDLT rates for commercial and mixed-used properties.
|Property, lease premium or transfer value||Rate (%)|
|Up to GBP150,000||0|
|The next GBP100,000||2|
|Portion above GBP250,000||5|
SDLT is also charged on the grant or assignment of a lease. For the grant of a lease, SDLT is charged on any premium given (at the same rates as for freehold purchases; see above), plus the net present value of the sum of the rents due under the lease. The following are the SDLT rates on the net present value of rent for residential property.
|Rental net present value||Rate (%)|
|Up to GBP125,000||0|
The following are the SDLT rates on the net present value of rent for nonresidential property.
|Rental net present value||Rate (%)|
|Up to GBP150,000||0|
|Over GBP150,000 but not more than GBP5 million||1|
|Over GBP5 million||2|
Land and Buildings Transaction Tax. LBTT is similar to SDLT, but some differences exist. The charging system is progressive, like SDLT, but the rates and bands are different. Similar to the SDLT regime, a 3% supplement is imposed on purchases of additional residential property (subject to certain exemptions). The following are the LBTT rates.
|Property, lease premium or transfer value||Rate for residential property (%)||Rate for nonresidential or mixed-use property (%)|
|Up to GBP145,000||0||0|
|GBP145,001 to GBP150,000||2||0|
|GBP150,001 to GBP250,000||2||3|
|GBP250,001 to GBP325,000||5||3|
|GBP325,001 to GBP350,000||10||3|
|GBP350,001 to GBP750,000||10||4.5|
No equivalent of the 15% rate for non-natural purchasers exists.
The grant, assignation or renunciation of a lease to residential property is exempt from LBTT unless it is a “qualifying lease” (and assuming it is not linked with any transaction with respect to nonresidential property). Broadly, “qualifying leases” are long residential leases that are analogous to “leasehold titles” in England and Wales. The following are the LBTT rates for “qualifying leases.”
|Relevant rental value||Rate (%)|
|Up to GBP150,000||0|
Annual tax on enveloped dwellings. Since 1 April 2013, an annual tax on enveloped dwellings (ATED) applies to non-natural persons holding UK residential property (if an individual does not own the residential property directly, but owns it, for example, through a company, this tax may apply). Property valued more than GBP2 million as at 1 April 2012 has been within the scope of this charge from the start. The regime was extended, effective from 1 April 2015, to properties valued at more than GBP1 million as at 1 April 2012, and effective from 1 April 2016, to properties valued more than GBP500,000 as at 1 April 2012. If property was acquired after 1 April 2012 and is valued at more than GBP500,000, it falls within this regime.
The following are the chargeable amounts of ATED for 1 April 2016 through 31 March 2017.
|Property value||Annual charge (GBP)|
|More than GBP500,000 but not more than GBP1 million||3500|
|More than GBP1 million but not more than GBP2 million||7000|
|More than GBP2 million but not more than GBP5 million||23350|
|More than GBP5 million but not more than GBP10 million||54450|
|More than GBP10 million but not more than GBP20 million||109050|
|More than GBP20 million||218200|
Non-natural persons within the charge of the ATED may also be liable to an ATED-related CGT charge at 28% if they dispose of a UK property with a value of more than GBP500,000 at a gain (also, see Capital gains tax in Section A).
Certain reliefs and exemptions from ATED are available (for example, to bona fide property rental businesses, property developers and property traders).
Inheritance and gift tax. Inheritance tax (IHT) may be levied on the estate of a deceased person who was domiciled in the UK or who was not domiciled in the UK, but owned assets situated there. An individual who does not have a UK domicile for IHT purposes is taxed only on UK-situated assets.
A UK domicile is acquired at birth when the individual’s father (if the child’s parents are married at birth) has a UK domicile. An individual may change this by severing all ties with the UK and acquiring a “domicile of choice” elsewhere. Similarly, an individual domiciled outside the UK may acquire a UK domicile of choice by forming a permanent intent to remain in the UK. For IHT purposes, UK domicile is extended to apply to individuals resident in the UK for substantial periods (currently defined as residence in the UK in any 17 of the last 20 UK tax years). Effective from 6 April 2017, any individual who has been resident in the UK for at least 15 of the past 20 tax years will be deemed UK domiciled for IHT purposes. From the 16th year, a foreign domiciliary will be deemed UK domiciled.
Effective from 6 April 2017, if an individual is born in the UK with a UK domicile of origin at birth, and if he or she later acquires a non-UK domicile of choice, he or she will be broadly treated the same for IHT purposes as a person who is UK domiciled under general law when the individual resumes UK residence (if the individual has been UK resident for one of the two preceding tax years).
There will also be a “run-off period” of four years during which deemed domicile status for UK IHT purposes endures. Once UK domicile or deemed domicile status has been reacquired, the individual will need to spend at least four UK tax years outside the UK before losing his or her deemed tax domicile status for UK IHT.
IHT is levied on the probate value of an individual’s estate at death. If the deceased was domiciled or deemed domiciled in the UK for IHT purposes, the taxable estate includes worldwide assets; otherwise, it includes only UK assets. Effective from 6 April 2017, non-UK assets that derived their value from UK residential property are within the scope of UK IHT (for example, shares in a non-UK company holding UK residential property).
The inheritance tax rate is 40% for the estate on death. A nil rate band of GBP325,000 applies for 2016–17. Any unused allowance of a spouse or civil partner may be transferred to the second deceased estate, provided the second death occurs after 9 October 2007.
Effective from 6 April 2017, a new main residence transferable nil-rate band will apply if a “main residence” is passed on to a direct descendant. Broadly, this means a child or grandchild and includes adopted children, foster children and stepchildren. It does not include nieces and nephews. The definition of main residence will generally be will be very similar to the definition currently applicable to principal private residence relief for CGT. A property that was never a residence of the deceased such as a buy-to-lease property will not qualify. The allowance will initially be set at GBP100,000 in 2017–18, increasing to GBP125,000 in 2018–19, GBP150,000 in 2019–20 and to GBP175,000 in 2020–21. There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than GBP2 million. It will be a withdrawal rate of GBP1 for every GBP2 over this threshold.
IHT is also levied on gifts made by the deceased within seven years before death and on certain other lifetime gifts.
Exemptions and deductions are available for inter vivos gifts and for estate transfers at death. Gifts between spouses are exempt, but the exemption is limited to the prevailing nil rate band, which is currently GBP325,000 (GBP55,000 before 6 April 2013), if the transferor is domiciled in the UK but the transferee is not domiciled there. Non-UK-domiciled individuals with UK-domiciled spouses may make an election to be treated as having a UK domicile for IHT purposes in order to obtain the full spouse exemption. Inter vivos transfers over the nil rate band into all types of family trusts are subject to IHT at 20%, subject to certain limited exemptions. Taper relief provisions to reduce the tax rate ultimately levied on gifts made within seven years before death are shown in the following table.
Years between gift and death
|Exceeding||Not exceeding||Percentage of full IHT charge|
Business Property Relief and Agricultural Property Relief are available at either 100% or 50% on the transfers of certain assets if various conditions are satisfied.
To prevent double taxation, the UK has entered into IHT treaties with the following jurisdictions.
France Netherlands Sweden
India Pakistan Switzerland
Ireland South Africa United States
Unilateral relief may also be available.
Apprenticeship levy. The apprenticeship levy, which will be effective from 6 April 2017, will be a new charge on UK employers to fund apprenticeships. It will potentially affect all employers across all industry sectors, regardless of whether apprentices are employed. The levy will be charged at a rate of 0.5% of an employer’s “paybill,” which is defined as earnings subject to Class 1 secondary National Insurance contributions (UK employer social security contributions on cash and deemed cash payments, but not on benefits in kind; also, see Section C). All employers will receive an annual allowance of GBP15,000 to offset against their levy, meaning that only those employers with a paybill in excess of GBP3 million per tax year will actually have to pay the levy. Groups of connected companies will be considered one employer for the purposes of calculating the levy and will have only one allowance to cover all of the group companies’ payrolls.
Employers will need to calculate, report and pay the levy on a monthly basis via the normal payroll process alongside the normal PAYE (see Section D) and National Insurance contribution remittances. The levy cannot be deducted from the earnings of an employee.
Contributions. In general, National Insurance contributions are payable on the earnings of individuals who work in the UK. Special arrangements apply to individuals working temporarily in or outside of the UK. Under certain conditions, an employee is exempt from contributions for the first 52 weeks of employment in the UK.
The contribution for an employed individual is made in two parts —a primary contribution from the employee and a secondary contribution from the employer. For 2016–17, the employee contribution is payable at a rate of 12% on weekly earnings between GBP155 and GBP827, and at a rate of 2% on weekly earnings in excess of GBP827.
An employer contributes at a rate of 13.8% on an employee’s earnings above GBP156, with no ceiling. Except under certain circumstances related to the exercise of a share option or the award of restricted securities, the employer is not entitled to reimbursement for any secondary contributions made, but these contributions are an allowable expense for purposes of determining the employer’s income tax or corporation tax. Contributions are collected under the PAYE system (see Section D).
Since 6 April 2015, employers no longer pay employer’s National Insurance contributions on weekly earnings up to the upper earnings limit (GBP827 for 2016–17) for employees under the age of 21. From 6 April 2016, this exemption from employer National Insurance contributions also applies to apprentices under the age of 25. Employers’ contributions are payable at a rate of 13.8% on weekly earnings above GBP827.
Employers must also pay National Insurance contributions on the provision of taxable benefits in kind (for example, employer-provided car or housing).
Different rules apply to self-employed individuals. For 2016–17, a weekly contribution of GBP2.80 is due if annual profits are expected to exceed GBP5,965. In addition, a self-employed individual must make a profit-related contribution on business profits or gains, which is collected together with income tax. The 2016–17 profit-related contribution rates are 9% on annual profits ranging from GBP8,060 to GBP43,000, and 2% on annual profits in excess of GBP43,000. Nonresident self-employed individuals are not subject to profit-related contributions.
The 2016–17 National Insurance contribution rates for employed individuals are set forth in the following tables.
|Total weekly earnings|
|Exceeding||Not exceeding||Rate of contribution|
|Total weekly earnings|
|Exceeding||Not exceeding||Rate of contribution|
* Employer National Insurance contributions are only payable on earnings above GBP827 for employees under the age of 21.
Totalization agreements. Contribution liability for individuals transferring to or from the UK varies, depending on whether the individual is covered under the EC social security legislation or another reciprocal agreement or whether the assignment is to or from a country with which the UK has not entered into a social security agreement. Each category is discussed below.
EC social security legislation. New EU social security legislation (EEC Council Regulation No. 883/2004) is effective from 1 May 2010. This legislation applies to all inter-EU moves for EU nationals. This legislation covers moves to Switzerland, effective from 1 April 2012, and moves to Iceland, Liechtenstein and Norway, effective from 1 June 2012. However, for the time being, the UK has not extended the application of EEC Council Regulation No. 883/2004 to non-EU nationals. The previous EU legislation (EEC Council Regulation No. 1408/71) continues to apply to non-EU nationals.
Under the EU legislation, a covered worker normally pays social security contributions in a single member country, usually the country where his or her employment duties are performed, even though he or she may not live there.
Under an exception to this rule, a worker seconded to work in the UK from another member state normally remains subject to social security contributions in his or her home country if the assignment is for 12 months or less (if Regulation 1408/71 applies) or 24 months or less (if Regulation 883/2004 applies). Individuals may remain in their home country scheme for significantly longer periods if they are deemed to work partly in more than one member state (multistate workers), or if they are considered special cases by virtue of specific skills or knowledge.
Reciprocal agreements. The UK has reciprocal social security agreements with several non-EEA countries, although the terms of the agreements vary. Therefore, to determine an individ ual’s liability or benefit entitlement, it is important to consult the particular agreement relating to the individual’s home country.
Without reciprocal agreement. If no reciprocal agreement exists between the home country of an individual and the UK, the individual is subject to both the domestic law of his or her home country and the law of the UK. For these indi viduals who come to work temporarily in the UK, exemption from payment of certain contributions for the first 52 weeks of their stay is common. The exemption depends on both the employee and the employer meeting various requirements.
To prevent double social security taxes and to assure benefit coverage, the UK has entered into totalization agreements with the following jurisdictions.
EEA countries Isle of Man Mauritius
Barbados Israel Philippines
Bermuda Jamaica Switzerland
Canada Japan Turkey
Chile Jersey United States
Guernsey Korea (South) Yugoslavia*
* The UK honors the Yugoslavia treaty with respect to Bosnia and Herzegovina, Macedonia, Montenegro and Serbia. The EC social security rules have applied to Slovenia since 1 May 2004 and to Croatia since 1 July 2013.
Tax filing and payment procedures
General. The tax year for individuals in the UK runs from 6 April to 5 April of the following year.
Whether compensation is subject to UK tax and how it is taxed depend on the employee’s residence status at the time the compensation is earned. Taxable compensation is actually taxed in the year of receipt. Earnings, including bonuses and commissions earned in one year but not paid until a subsequent tax year, are taxed when received. For example, if an individual receives a salary of GBP30,000 during the year ending 5 April 2017, and earns a bonus of GBP20,000 for that tax year which is not paid until December 2017, the salary is subject to tax in 2016–17, but the bonus, earned in the same period as the salary, is subject to tax in 2017–18, when it is received. The term “receipt” is broadly defined for this purpose and includes payment as well as entitlement to payment.
Married persons are taxed as separate individuals. Spouses are responsible for their own tax returns, are assessed on their own income and gains, and are given tax relief for their own allowable deductions and allowances. Individuals are entitled to their own tax-band rates and capital gains tax exemptions.
Income from jointly held assets is divided equally between spouses and taxed accordingly. However, if a husband and wife are beneficially entitled to unequal shares of an investment in certain property and to the resulting income, or if either spouse is beneficially entitled to the capital or income to the exclusion of the other, a declaration may be made to HMRC to ensure that the income is assessed according to its beneficial interest.
Advance payment of taxes. Income tax and social security contributions on cash earnings are normally collected under the PayAs-You-Earn (PAYE) system. All employers must use the PAYE system to deduct tax and social security contributions from wages or salaries.
Although expense reimbursements and many non-cash benefits are not normally subject to PAYE withholding, they must be reported to HMRC by employers after the end of the tax year and by employees on their tax returns. HMRC may also take them into account in determining the employee’s PAYE tax code, which in turn adjusts the amount of tax to be deducted from the employee’s cash pay. From 2016–17 onward as an alternative, employers may agree with HMRC that most benefits in kind may be subject to payroll withholding rather than reported separately after the end of the tax year.
Tax returns. The UK has a self-assessment tax system. Under the self-assessment system, individuals who receive a notice to file a tax return from HMRC may choose to have HMRC calculate and assess their tax liability or to calculate and assess the tax due themselves. Individuals who choose to have HMRC calculate and assess tax must complete and submit their tax returns by 31 October following the end of the tax year. Individuals who choose to calculate and assess tax themselves must complete and submit tax returns by 31 October following the end of the tax year if they want to file paper returns. Returns can be filed electronically, together with a calculation of the tax due, up to 31 January following the end of the tax year.
If tax is due as calculated on the return, it must be paid by 31 January following the end of the tax year. Provisional on account payments of tax on income not subject to withholding are usually payable in two installments, on 31 January in the tax year and on the following 31 July.
Each installment must equal 50% of the previous year’s income tax liability not withheld at source.
Interest is automatically charged on tax not paid by the due dates. A 5% penalty is also imposed if the tax is not paid within 30 days after the final payment date. A further penalty of 5% is imposed if the tax is not paid within six months following the final payment date. An additional penalty of 5% is imposed if the tax is still not paid within 12 months following the final payment date.
A fixed penalty of GBP100 is imposed if a return is not filed by the applicable deadline (that is, 31 October or 31 January) even if no tax is due. If the return is three months late, HMRC may seek to impose daily penalties of GBP10 a day for a period of up to 90 days (GBP900 per return). A further fixed penalty of the higher of GBP300 or 5% of the tax due is imposed if the return is six months late. An additional penalty, which can be up to 200% of the tax due, is imposed if the return is 12 months late and if facts are deliberately concealed. Penalties also apply to incorrect returns.
Individuals who are not subject to tax withheld at source and who do not receive a notice to file a tax return must inform HMRC by 5 October following the end of the tax year if they are likely to have a UK tax liability for the tax year concerned.
Capital gains tax. Capital gains are generally reported on the self-assessment tax return, and any CGT due must be included with the final payment of tax for the year. An additional reporting requirement, the NRCGT return, also applies with respect to disposals of UK residential property by nonresidents (see Disposal of UK residential property by nonresidents in Capital gains tax in Section A).
Inheritance tax. Inheritance tax is usually payable by the deceased’s personal representative when probate (confirmation of the estate) is obtained. Some liabilities, however, must be paid by trustees of settled property and by recipients of lifetime gifts.
Double tax relief and tax treaties
If income is doubly taxed in two or more countries, relief for double taxation is typically available through a foreign tax credit or exemption. In the absence of a treaty with the country imposing the foreign tax, unilateral relief may be claimed under UK domestic law. However, to claim relief, it is essential that the income be regarded as foreign source under UK law. The taxpayer also usually needs to be resident in the UK unless he or she has an ongoing liability for UK taxes as a nonresident (for example, because he or she is a Crown employee).
The relief usually takes the form of a foreign tax credit if an individual is resident in the UK for the purpose of a double tax treaty. In this case, any foreign taxes paid on doubly taxed income can be taken as credit against the UK tax liability on the same source of income. The credit that can be claimed is limited to the lesser of the foreign taxes paid or the amount of equivalent UK tax on the doubly taxed income.
If an individual is resident in the UK and treaty-resident in a country with which the UK has entered into a double tax treaty, a claim may be made in the UK to exempt from UK tax the income that would otherwise be taxed in both countries if the treaty contains the relevant articles.
The UK has entered into double tax treaties covering taxes on income and capital gains with the following jurisdictions.
Albania Ghana Norway
Algeria Greece Oman
Antigua and Grenada Pakistan
Barbuda Guernsey Panama
Argentina Guyana Papua New Guinea
Armenia Hong Kong SAR Philippines
Australia Hungary Poland
Austria Iceland Portugal
Azerbaijan India Qatar
Bahrain Indonesia Romania
Bangladesh Ireland Russian Federation
Barbados Isle of Man Saudi Arabia
Belarus Israel Senegal
Belgium Italy Serbia
Belize Jamaica Sierra Leone
Bolivia Japan Singapore
Bosnia and Jersey Slovak Republic
Herzegovina Jordan Slovenia
Botswana Kazakhstan Solomon Islands
British Virgin Kenya South Africa
Islands Kiribati Spain
Brunei Korea (South) Sri Lanka
Darussalam Kosovo (b) St. Kitts and Nevis
Bulgaria Kuwait Sudan
Canada Latvia Swaziland
Cayman Islands Lesotho Sweden
Chile Libya Switzerland
China Liechtenstein Taiwan
Côte d’Ivoire Lithuania Tajikistan (c)
Croatia Luxembourg Thailand
Cyprus Macedonia Trinidad and
Czech Republic Malawi Tobago
Denmark Malaysia Tunisia
Egypt Malta Turkey
Estonia Mauritius Turkmenistan
Ethiopia Mexico Tuvalu
Falkland Moldova Uganda
Islands Montenegro Ukraine
Faroe Islands Montserrat United States
Fiji Morocco Uzbekistan
Finland Myanmar Venezuela
France Namibia (a) Vietnam
Gambia Netherlands Zambia
Georgia New Zealand Zimbabwe
a) The 1962 South Africa treaty applies to Namibia (formerly known as South West Africa).
b) This treaty is effective in the United Kingdom from December 2015 for the tax year beginning on 6 April 2016 and future tax years.
c) This treaty is effective in the UK for income and capital taxes from 6 April 2015.
Entering the UK
On 23 June 2016, the UK voted by way of national referendum to leave the EU. The protocol for leaving the EU requires the UK to invoke Article 50 of the Lisbon Treaty, thereby triggering a two-year period in which the UK may negotiate new relationships with the EU and its member states covering areas including immigration and trade. As of the time of writing, Article 50 has not been invoked, and accordingly, the actual date of the UK’s exit from the EU is currently unknown. Notably, the ability of EEA nationals to live and work in the UK will continue unimpeded until the UK formally exits the EU, which is expected to be no earlier than two years after Article 50 is invoked. It is currently unclear whether EEA nationals who are currently living and working in the UK will be permitted to stay once the UK has left the EU. It is equally unclear whether EEA nationals who will be entering the UK after the UK has left the EU will be required to obtain work permission, and if so, whether they will need to do so on the same terms as non-EEA nationals. Both principles will be decided by the UK’s negotiations with Europe over the coming months and years.
In general, to enter the UK, you must have a travel document (in most cases a passport) that is usually required to be valid for six months after your proposed return date.
Regardless of the duration or purpose of their visit, nationals of certain countries must obtain entry clearance (a visa) before traveling to the UK. Individuals from the relevant countries are commonly known as “visa nationals.”
In contrast, “non-visa nationals” are not required to obtain entry clearance if traveling to the UK as visitors or business visitors (performing certain activities) for a period not exceeding six months.
If the purpose of the visit is for work or employment, individuals, including non-visa nationals, must obtain appropriate entry clearance before traveling to the UK.
Entry-clearance applications must be made to a British Embassy, Consulate General or High Commission (collectively known as British diplomatic posts) or one of their Commercial Partners’ offices in the individual’s home country or country of legal residence (other than as a visitor).
Applications for entry clearance may be refused if the applicant has breached UK immigration rules during the preceding 10 years. Providing misleading or false information when applying for entry clearance or leave to enter may result in an individual being barred from entering the UK for a minimum of one year.
A British diplomatic post approving an entry clearance for longer than six months may stipulate that the individual must register with the police within seven days of arriving in the UK. A national of an EEA or Commonwealth country does not have to register with the police.
UK authorities may impose financial penalties on airlines and shipping companies that bring unauthorized passengers to the UK. This legislation was introduced to reduce the number of persons who are turned away at the port of entry because they do not have the necessary entrance authorization.
The UK government has introduced an immigration health surcharge (separate from the visa fee). The surcharge is payable by most non-EEA migrants coming to the UK for more than six months (that is to live, work or study), with exemptions available in some cases. The surcharge is set at GBP200 per year for the main applicant and each dependent, and GBP150 per year for a student.
Visitors. Individuals coming to the UK as tourists or business visitors are normally granted admission for a period of six months. The rules regarding business visitors are complex and should be considered on a case-by-case basis. In general, business visitors are prohibited from working while in the UK or receiving a salary in the UK. However, they are allowed to attend meetings, transact business and negotiate contracts with UK companies. It is advisable that an individual planning to come to the UK as a business visitor have a letter from his or her employer stating the purpose and duration of the visit. The visitor rules have recently been the subject of “visitor simplification,” and new guidelines are effective from 24 April 2015.
The UK government has identified specific categories of individuals who are permitted to perform paid activities in the UK. They are allowed to perform “work” for which they can receive payment, but only for a period of up to one month. These categories are visiting academic examiner, lecturer, pilot examiner, advocate/lawyer, and activity related to the arts or entertainment.
Visa nationals coming to the UK must obtain entry clearance before traveling to the UK. Although non-visa nationals coming to the UK as visitors for up to six months do not require entry clearance, they must restrict their activities to those prescribed and permitted under the business visitor framework. Following the visa simplification process in 2015, 15 previous visitor routes have been condensed into 4 routes.
Students, Working Holiday Makers and investors. Like several previous immigration categories, the rules governing foreign students, the Working Holiday Scheme, and investors have been replaced by new categories under the Points Based System (PBS). Individuals seeking to come to the UK as students, investors or individuals entering under the Youth Mobility Scheme (the replacement for the Working Holiday Scheme) now need to score a specified number of points to qualify for entry clearance. For further details regarding the PBS, see Section G.
Entry for the purposes of employment, self-employment, studying, government-exchange program and other purposes
Under the Immigration Act of 1971 and the British Nationality Act of 1981, certain individuals are given the right of abode, which in most cases entitles the bearer to live and work in the UK without restriction. These acts preclude the necessity for entry clearance (permission to enter the UK) for certain qualified individuals. Individuals who do not qualify for the right of abode and who wish to live and work in the UK must apply for the appropriate immigration document and/or entry clearance (visa). Whether a combination of these items is required depends on the individual’s circumstances.
EEA and Swiss nationals. The EEA consists of the following countries.
Austria Greece Netherlands
Belgium Hungary Norway
Bulgaria Iceland Poland
Croatia Ireland Portugal
Cyprus Italy Romania
Czech Republic Latvia Slovak Republic
Denmark Liechtenstein Slovenia
Estonia Lithuania Spain
Finland Luxembourg Sweden
France Malta United Kingdom
For the purposes of entry on the grounds of employment, the list of countries above extends to Switzerland, notwithstanding the fact that Switzerland is not a member of the EEA.
Nationals of EEA countries have varying degrees of access to the UK labor market.
Nationals of all EEA member countries, except Croatia, have full rights of free movement in the UK and do not require a work permission in order to work. Their dependents, including a spouse or civil partner, children and grandchildren who are under 21 years of age and parents or grandparents may join them in the UK, and enjoy a right of residence.
Croatia joined the EU in July 2013. Croatian nationals are currently free to live in the UK, but they require work permission to work in the UK. UK-based employers wishing to employ Croatian nationals as skilled and temporary workers should continue to sponsor their employment through the existing arrangements under Tiers 2 and 5 of the Points Based System (PBS; see Non-EEA nationals). Consequently, employers wishing to employ Croatian nationals need to be licensed with the Home Office as a Tier 2 or Tier 5 sponsor in the same way as if they wished to issue a Certificate of Sponsorship to a non-EEA worker under the PBS. Croatian nationals are currently issued with a colored registration certificate (purple, blue or yellow) confirming their right to work in the UK.
Bulgarians and Romanians no longer require work permission to work in the UK. Consequently, they should enter the UK as EEA nationals.
EEA nationals may apply for a residence document on arrival in the UK, but this is not mandatory. The residence document is usually valid for five years. After an individual has been resident in the UK for five years, he or she may qualify to apply for permanent residency subject to meeting certain requirements.
In all cases, non-EEA dependents who wish to join an EEA family member in the UK should obtain an EEA Family Permit (usually valid for six months) from a British diplomatic post before traveling to the UK.
Non-EEA nationals. In general, non-EEA nationals, and persons without settled status or a right of abode in the UK who wish to come to the UK for the purpose of employment must obtain the requisite employment authorization entry clearance for that purpose before traveling to the UK.
In 2008, the government introduced a new Points Based System (PBS) and new legislation for the prevention of illegal working. The PBS is a point-scoring system under which foreign migrants are awarded points to reflect aptitude, experience and the demand for skills in certain sectors. The illegal working legislation increased the penalties for employers who breach the requirements. These measures are aimed at strengthening the government’s ability to control immigration more effectively.
In 2010, the coalition government introduced several changes to the PBS that were designed to significantly reduce the numbers of non-EEA economic migrants entering the UK. The most significant of these changes was the introduction of an annual limit (cap), effective from 6 April 2011.
The current UK government has continued to revise and amend the PBS in an effort to reduce net migration to the UK.
A key feature of some of the tiers of the PBS is that employers must obtain a sponsor license to sponsor foreign migrants coming to the UK. Sponsors are required to estimate their use of Certificates of Sponsorship (CoS) in different categories on an annual basis. They are also subject to reporting and compliance requirements to maintain their status as licensed sponsors.
The PBS consists of five tiers, which are discussed below. Tier 1. Tier 1 has several subcategories:
The Tier 1 (Exceptional Talent) category is intended for individuals who are internationally recognized in their field as a leading world talent. The UK government has limited the number of applications that can be made. Every initial application must be endorsed by a “designated competent body.” The number of endorsements between 6 April 2016 and 5 April 2017 is limited to 1,000. The endorsements will be assigned to the designated competent bodies in two phases. Limited places are available under this visa category, with 500 places released on both 6 April and 1 October of each year.
The Tier 1 (Graduate Entrepreneur) category applies to graduates who have been identified by Higher Education Institutions (HEIs) as having developed world-class innovative ideas or entrepreneurial skills. Graduates must hold a bachelor’s, master’s or PhD degree. The number of places for the year running from 6 April 2016 to 5 April 2017 is limited to 2,000. Of these, 1,900 places will be allocated to qualifying Higher Education Institutions (HEI) for graduates in any subject, known as general endorsements, and 100 places will be allocated to UK Trade Investment (UKTI) for overseas graduates, known as global endorsements. Leave to remain in this category is initially granted for 12 months and can be extended for a further 12 months. At the end of a migrant’s second year, he or she may be eligible to switch into the Tier 1 (Entrepreneur) category. Time spent in this category does not count toward settlement, and the funds required to switch into the Tier 1 (Entrepreneur) category are lowered to GBP50,000 for those registered as self-employed or as a director.
The Tier 1 (Investor) category applies to individuals who intend to make a large investment in the UK. Such individuals need access to a minimum of GBP2 million that is disposable and that is in a financial institution. Accelerated routes to settlement are available to individuals who can invest GBP5 million in three years or GBP10 million in two years.
The Tier 1 (Entrepreneur) category applies to individuals who intend to invest in the UK by setting up or taking over the running of a business and can demonstrate they have access to a certain amount of investment funds that are held in one or more regulated financial institutions and that are disposable in the UK (currently, GBP200,000).
Tier 2. The Tier 2 (General) category applies to skilled workers who do not have 12 months’ previous work history abroad with the licensed sponsor that has offered them a job in the UK or to individuals inside the UK who wish to switch into the Tier 2 category (that is, students or those seeking to change employment). The employer must satisfy the prescribed Resident Labour Market Test to demonstrate an inability to fill the post with a resident worker or provide evidence that a specific role is classified as a Shortage Occupation role. Except for nationals from a handful of majority-English-speaking countries, individuals who wish to work in the UK under Tier 2 must provide specified documents to show that they have a good knowledge of English at Level B1. The minimum salary requirement for roles in this category is GBP20,800 per year. Salaries must also meet the minimums set out in the Standard Occupation Classification Code of Practice (SOC Codes) published by the Home Office.
This category is subject to an annual limit of 20,700 places, from 6 April of each year to 5 April of the following year, with the exception of individuals who will receive an annual salary of more than GBP155,300 per year. Licensed sponsors must apply for a “restricted” certificate of sponsorship through the monthly allocation. The sponsor must already have carried out the Resident Labour Market Test (if applicable) before applying for a “restricted” certificate. Individuals who receive a guaranteed salary in excess of GBP155,300 are exempt from the Resident Labour Market Test requirement as well as the “cooling off period.”
When a Tier 2 visa holder leaves the UK at the end of his or her stay, he or she may not apply for a new Tier 2 visa until 12 months have passed since he or she left the UK. This is known as the “cooling off period.” Several exceptions exists, most notably if the guaranteed salary will be in excess of GBP155,300.
Each month, a set number of “restricted” certificates is available for allocation to UK employers, based on a points test. Jobs in occupations with shortage and certain PhD-level positions are given priority, with applications then being sorted by salary. In the event that the number of valid applications received is greater than the number of certificates available, the applications scoring the lowest number of points are refused first. In the event that not all the allocated certificates are used, the excess is carried over and added to the following month’s available allocation.
The Tier 2 (Intracompany Transfer, or ICT) category has four subcategories.
The Tier 2 (ICT Long Term and Short Term categories apply to employees of multinational companies who are being transferred by an overseas employer to a UK-based branch of the organization. These employees must have worked abroad with the company for at least 12 months. Individuals who enter the UK under this category must fill roles at the graduate level or above that cannot be filled by a settled worker. The minimum annual salary is GBP24,800 (GBP30,000 from October 2016) for Short Term ICT and GBP41,500 for Long Term ICT. Individuals must also receive the salaries specified in the SOC Codes. Individuals are not required to demonstrate English language ability. Under the Long Term category, it is possible to apply for initial entry clearance for a period of five years (for an additional fee) or to apply for an initial grant of three years with the option of a further extension in the country to bring the total grant to five years. Typically, the individual is not able to extend leave beyond 5 years and is not able to reapply to return to the UK in that category until 12 months after the end of the leave under the expired ICT. Employees who receive an annual salary of more than GBP155,300 may extend their leave up to nine years. They are also exempt from the “cooling off” period. Individuals in the Short Term category may also return in the Long Term category without being subject to the “cooling off period” if they meet the necessary criteria. The Tier 2 (ICT Short Term) category is scheduled to close to new entrants in April 2017.
The Tier 2 (ICT) Skills Transfer category applies to employees of multinational companies who are being transferred by overseas employers to the UK-based branches of the organizations for no more than six months to acquire the skills and knowledge that they may need to fulfill their role overseas or to impart their specialist skills or knowledge to the UK workforce. Only certain roles are eligible to qualify for this visa, and the role must be additional to normal staffing requirements. This category must not be used to fill UK vacancies or to displace resident workers by, for example, filling positions in a UK-based project or by rotating the admission of skills transferees to effectively fill longterm positions in the UK. On-the-job training and work for the purposes of skills transfer is allowed if the work undertaken is in line with the skills transfer. Individuals may enter the UK for a maximum of six months in this category and must meet the minimum salary of GBP24,500 and the minimum salary specified for the appropriate SOC Code. This category is scheduled to close to new entrants in October 2016.
The Tier 2 (ICT) Graduate Trainee category applies to recent graduate employees of multinational companies, with at least three months of service overseas, who are being transferred by overseas employers to the UK-based branch of the organization for no more than 12 months for the purpose of training. Individuals may only come to the UK in this category if they are part of a structured graduate training program with clearly defined progression toward a managerial or specialist role within the organization. Only certain roles are eligible to qualify for this visa. Only 5 (20 from October 2016) graduate trainee visas may be issued per sponsor per financial year. Graduate Trainees must be paid a minimum salary of GBP24,500 (GBP23,000 from October 2016) per year.
The Minister of Religion category applies to individuals coming to the UK as religious workers for religious organizations for more than two years. Individuals coming to the UK under this category are required to meet the English language requirement at Level B2.
The Sportsperson category applies to elite sports people and coaches who are internationally established at the highest level, and will make a significant contribution to the development of their sport. Individuals coming to the UK under this category are required to meet the English language requirement at Level A1.
Tier 3. Tier 3 covers low-level skill workers. This tier is currently suspended until further notice.
Tier 4. Tier 4 covers individuals wishing to study in the UK. Such individuals must be sponsored by a licensed educational institution in the UK.
Tier 5. Tier 5 covers the following temporary workers:
- Individuals coming to the UK to work or perform as sportspersons, entertainers or creative artists
- Individuals coming to the UK to do voluntary work for charity
- Individuals coming to the UK to work temporarily as religious workers
- Individuals coming to the UK through Government Approved Exchange Programs
- Individuals coming to the UK under contract to do work that is covered under international law
Tier 5 also covers young people from participating jurisdictions who would like to experience life in the UK under the Youth Mobility scheme. For 2016, the following are the jurisdictions participating in the scheme, and the number of places or certificates of sponsorship allocated to them:
- Australia: 45,500
- Canada: 5,000
- Japan: 1,000
- Hong Kong SAR: 1,000
- Korea (South): 1,000
- Monaco: 1,000
- New Zealand: 12,000
- Taiwan: 1,000
Nationals from Korea (South), the Hong Kong SAR and Taiwan who want to apply must obtain sponsorship before making an application in this category.
Other matters regarding the tiers. The five tiers have different conditions, entitlements and entry clearance requirements. For each tier, individuals need to score sufficient points to gain entry clearance or leave to remain in the UK, as well as demonstrate the ability to support themselves and any dependents.
Individuals applying to come to the UK under the PBS must obtain entry clearance before traveling to the UK. More specifically, individuals coming to the UK for employment purposes may not begin employment in the UK until they have obtained entry clearance or leave to remain for the specific job and the particular employer in question. A short visit to the UK while a PBS application is underway may be permitted, but risks are associated with such a trip.
Permit-free employment categories. Individuals who fall into certain categories do not need permission to work in the UK but must obtain prior entry clearance from a British diplomatic post before entering the UK. The following are the categories:
- Commonwealth nationals with a British-born grandparent or right of abode (UK ancestry)
- Sole representatives of foreign firms that do not have a branch, subsidiary or other representation in the UK, including representatives of foreign newspapers, broadcasters or news agencies on a long-term assignment to the UK
- Individuals coming to the UK as representatives of foreign governments or as employees of the United Nations or other international organizations
Further details regarding the first two categories are provided below.
UK ancestry. A Commonwealth citizen with a British-born grand parent may be given permission to live and work in the UK for five years. Toward the end of this period, the individual may apply for indefinite leave to remain in the UK.
The position is different for individuals with British parents. In certain circumstances, they may qualify for a British passport or be entitled to the right of abode. As a result, they can live and work in the UK without restriction. However, they still need to obtain the appropriate documentation from a British diplomatic post before coming to the UK.
Sole representatives. Employing a sole representative is a simple way for overseas companies to introduce their products into the UK market. This approach is a convenient way for an overseas company to bring an employee to the UK to set up operations.
To obtain clearance as a sole representative, an individual must prove that he or she will be the sole representative of a particular overseas company in the UK. He or she must also demonstrate that a need exists for his or her presence in the UK and that it is his or her intention to establish a subsidiary or branch of the foreign company after entering the UK.
A sole representative must remain under the direct control of the overseas company. Initially, entry clearance is usually granted for up to three years. After this period the individual can apply for an extension if certain criteria are met.
Permanent residence status
If an individual has been living and working in the UK continuously for five years with valid leave obtained under the PBS (which leads to settlement), he or she and his or her dependents may be eligible to apply for permanent residence status, otherwise known as Indefinite Leave to Remain (ILR). Individuals applying for ILR on the basis of their sponsored employment are required to meet a minimum salary threshold of GBP35,000 from April 2016. This threshold will be increased to GBP35,500 for applications made on or after 6 April 2018.
An individual who has obtained leave as the partner of a British citizen or person settled in the UK must reside in the UK continuously for five years before he or she qualifies for ILR.
Permanent residence status removes the time and employment restrictions that were imposed when an individual first entered the UK. This means that the individual may be able to settle permanently in the UK and take up any employment.
An individual can retain his or her permanent resident status during a period of absence if he or she is not away from the UK for a continuous period of more than 24 months and if he or she retains close ties with the UK during his or her absences; that is, when the individual returns to the UK, he or she is returning to reside, not to visit.
Family and personal considerations
Family members. The dependents of a non-EEA (and non-Swiss) national admitted to the UK under most categories are admitted for the same period and are eligible to take employment. Dependents generally include the permit holder’s spouse or civil partner and children less than 18 years of age. However, dependents must obtain entry clearance before accompanying the principal applicant to the UK.
The spouse or civil partner and dependents (including children under 21 years of age, parents and grandparents) of an EEA national or a Swiss national, regardless of whether they are EEA or Swiss nationals themselves, are also granted entry rights including the right to work for an initial period of six months. On entry into the UK, they may extend their stay by applying for a Residence Card. EEA or Swiss nationals and their dependents are not required to register with the police (see Section F).
The UK immigration rules contain provisions to accommodate non-EEA family members of British citizens. However, such applications should be assessed on a case-by-case basis. Individuals are typically issued entry clearance for a period of 33 months with the option to extend this status from within the UK and make an application for ILR on the completion of continuous lawful residence of five years in the UK.
Driver’s permits. Foreign nationals may drive legally in the UK with their home jurisdiction driver’s licenses for 12 months.
The UK provides driver’s license reciprocity with the following jurisdictions.
EU member Canada Monaco
countries Falkland Islands New Zealand
Australia Faroe Islands Singapore
Barbados Hong Kong SAR South Africa
British Virgin Japan Switzerland
Islands Korea (South) Zimbabwe
Individuals from non-reciprocal jurisdictions must take a practical driving examination after 12 months in the UK.
British citizenship. In certain circumstances, an individual holding a work visa may be eligible to apply to naturalize as a British citizen after a continuous period of five years’ residence in the UK, the last 12 months of which must have been as a holder of ILR. In most cases, an individual should be eligible for naturalization after a continuous period of residence of six years in the UK (five years to obtain ILR and one further year free of immigration conditions).
An individual married to a British citizen may be able to apply to naturalize as a British citizen if he or she has continuously resided in the UK for three years and is a holder of ILR at the time the application is made. In practice, because the partner of a British citizen can now only obtain ILR after five years, it still takes five years to qualify for naturalization in most circumstances. The UK allows dual nationality. However, not all countries allow dual nationality. Consequently, this should be confirmed before making an application.
Identity cards for non-EEA nationals. The government has introduced identity cards (Biometric Residence Permits, or BRP cards) for foreign nationals in the UK. The BRP cards replace the stickers or vignettes in passports. Identity cards have now been introduced for all migrant worker categories, applications for indefinite leave to remain and applications for leave as an unmarried partner, same-sex partner or spouse. Individuals granted entry clearance now receive a vignette in their passport valid for 30 days and are required to collect their BRP from a participating post office in the UK on arrival.
Tuberculosis testing. Individuals who are coming to the UK for more than six months and are resident in any of the following jurisdictions must have a tuberculosis (TB) test:
- Benin (get tested in Nigeria)
- Brunei Darussalam
- Burkina Faso (get tested in Ghana)
- Burundi (get tested in Rwanda)
- Cape Verde (get tested in Gambia or Senegal)
- Central African Republic (get tested in Cameroon)
- Chad (get tested in Cameroon)
- Congo (Democratic Republic of)
- Congo (Republic of) (get tested in Democratic Republic of Congo)
- Côte d’Ivoire (get tested in Ghana)
- Djibouti (get tested in Ethiopia)
- Dominican Republic
- Equatorial Guinea (get tested in Ghana)
- Eritrea (get tested in Kenya)
- Gabon (get tested in Cameroon)
- Guinea (get tested in Sierra Leone)
- Guinea Bissau (get tested in Gambia or Senegal)
- Hong Kong SAR
- Kiribati (get tested in Fiji)
- Korea (North)
- Kyrgyzstan (get tested in Kazakhstan)
- Laos (get tested in Thailand)
- Lesotho (get tested in South Africa)
- Liberia (get tested in Ghana)
- Macau SAR (get tested in Hong Kong SAR)
- Mali (get tested in Gambia or Senegal)
- Marshall Islands (get tested in Fiji)
- Mauritania (get tested in Morocco)
- Micronesia (get tested in Fiji)
- Myanmar (Burma)
- Niger (get tested in Ghana)
- Palau (get tested in Philippines)
- Papua New Guinea
- Russian Federation
- São Tomé and Príncipe (get tested in Angola)
- Sierra Leone
- Solomon Islands (get tested in Papua New Guinea)
- Somalia (get tested in Kenya)
- South Africa
- South Sudan (get tested in Kenya)
- Sri Lanka
- Swaziland (get tested in South Africa)
- Tajikistan (get tested in Kazakhstan)
- Timor-Leste (get tested in Indonesia)
- Togo (get tested in Ghana)
- Tuvalu (get tested in Fiji)
- Vanuatu (get tested in Fiji)
An individual is given a chest X-ray to test for TB. If the result of the X-ray is not clear, the individual may also be asked to give a sputum sample (phlegm coughed up from the lungs).
If the test shows that the individual does not have TB, he or she is given a certificate that is valid for six months. This certificate must be included with the UK visa application.
A TB test is not required for the following individuals:
- Diplomats accredited to the UK
- Residents of the UK who are returning within two years of leaving
- Holders of certificates of entitlement (right of abode in the UK) for more than six months who are applying for another visa within six months of leaving their country of residence
All children must see a clinician who decides if they need a chest X-ray. Children under 11 will not normally have a chest X-ray. A parent must take his or her child to an approved clinic and complete a health questionnaire. If the clinician decides the child does not have TB, the clinician gives a certificate to the parent. This certificate must be included with the child’s UK visa application.
Pregnant women can choose between the following two tests:
- An X-ray with an extra shield to protect the woman and her unborn child
- A sputum test (an extra fee may be required and it can take up to eight weeks for results)
If a pregnant woman does not want to be tested, she can use an X-ray taken within the last three months at a UK-approved screening clinic. She can ask a clinician at an approved clinic to review her X-ray. If it is accepted, the clinician gives her a certificate to include with her UK visa application.