The meeting takes place in an undisclosed – but very salubrious – hotel room in Mayfair, London.
Head Tax Native (“TN”):
Secret Private Client Adviser in the UK your mission, should you choose to accept it, is to educate us on the practical tax considerations in the UK.
This task requires a delicate balance of expertise and discretion. Be warned, should your real identity be revealed during this covert operation, you will be disavowed by Tax Natives and shunned by your fellow private client advisers.
Do you accept?
Secret Private Client Adviser in UK (Secret Adviser):
I accept.
TN:
[Settling into an ornate armchair, crossing legs] We’re amidst the grandeur of Mayfair, and I’m intrigued to discuss the UK tax system’s recent developments. Could you start by explaining the overarching goal of these changes?
Secret Adviser:
[Leaning back thoughtfully] Certainly. The UK has been focusing on fairness and efficiency in its tax system, targeting loopholes, maximizing collections, and combatting avoidance and evasion.
TN:
[Nods, picking up a notepad] Let’s delve into individual taxation. How does it function in the UK?
Secret Adviser:
[Gesturing for emphasis] Individual taxation is administered on a self-assessment basis. Taxpayers must provide HMRC with sufficient information annually, following a unique fiscal year from April 6th to the next year’s April 5th.
TN:
[Jotting down notes, glances up] And what about the specifics of income and capital gains tax?
Secret Adviser:
[Pausing as a waiter serves tea, then continues] Income tax is progressive, with a top marginal rate of 45% for high earners. Capital gains tax has evolved from a high rate with taper relief to a more simplified structure, including a flat rate for higher earners. The maximum rate is usually 20% but this might be higher for sales of residential property (28%) and some other specific assets.
TN:
[Sipping tea, intrigued] Moving to savings and dividends?
Secret Adviser:
[Smiling slightly] There’s a starting rate for savings income, plus a £2,000 tax-free dividend allowance. Capital gains tax operates similarly, with a basic rate for lower earners and a higher rate for those above £50,270.
TN:
[Looking up as a gentle knock on the door indicates room service arrival] And Scotland’s unique stance?
Secret Adviser:
[Nodding] Scotland has its own rates, introducing a starter rate and an intermediate rate, with the top rate at 47%.
TN:
[As room service departs, refocusing] The remittance basis seems particularly relevant for high net worth individuals.
Secret Adviser:
[Leaning forward] Yes, it’s key for those moving to the UK who would be regarded as non-UK domiciled.. It taxes only UK income and gains unless foreign income is brought into the country. It’s a longstanding principle with notable changes in 2008 and later years.
TN:
What about recent developments in this area?
Secret Adviser:
There have been significant changes. For instance, non-domiciled individuals in the UK for over 15 years can’t claim the remittance basis from April 2017. Essentially, there’s a long stop date beyond which there are no tax benefits of being non-UK domiciled. They’ll become taxed on worldwide income and gains.
TN:
[Nods, writing down] And residency rules?
Secret Adviser:
Since 2013, residency is determined by a statutory test, considering physical presence and ties to the UK. There’s a clear day-count method now.
TN:
[Glances at watch, then back at the expert] The line between tax avoidance and evasion?
Secret Adviser:
[Firmly] It’s become a highly charged moral issue in the UK and one which has seen a lot of legislative activity as the government feels that it has support in cracking down in this area. The GAAR, introduced in 2013, aims to counteract artificial arrangements and tax abuse.
However, there are a number of other important measures introduced or enhanced such as the Disclosure of Tax Avoidance Schemes (“DOTAS”) and Promoters of Tax Avoidance Schemes (“POTAS”) measures.
TN:
[Leans back] Taxation of residential property has also seen changes?
Secret Adviser
[Nodding] Indeed. SDLT rates have increased, especially for high-value properties and second homes. The top rate for individuals is now 15%. There are also special charges for non-residents with the temerity to acquire UK property!
TN:
[Slightly surprised] What about a wealth tax in the UK?
Secret Adviser:
The ATED and SDLT changes are essentially a wealth tax, marking a significant policy shift. It’s targeted at high-value properties and their ownership structures. However, a formally badged ‘wealth tax’ does not seem high on the government’s agenda.
TN:
And cross-border structuring?
Secret Adviser:
The UK has been proactive in recovering offshore tax liabilities. Agreements with Switzerland and others, alongside disclosure facilities, reflect this.
TN:
[Standing, extending a hand] Thank you for this enlightening conversation in such a fitting setting.
Secret Adviser:
[Shaking hands] My pleasure.
Tapping out
If you have any queries about this top secret interview on private client tax in UK, or UK tax matters in general, then please get in touch