Income Tax Structure for Non-UK Domiciliaries
Achieves:
Reduces UK income tax liability.
Requires:
Confirmed non-UK domicile status.
How it works:
These rules differ from the rules on investment income. In general, an UK domiciled person who is resident and ordinarily resident in the UK is liable to UK income tax in relation to all employment income wherever earned.
A non-UK domiciled worker who is resident and ordinarily resident in the UK under a contract of employment with a non-UK resident employer will only be liable to income tax in respect of duties carried out partly or wholly in the UK. Where the duties under the contract are performed wholly outside the UK the earned income will only be taxed to the extent which it is remitted to the UK. If that non-UK domiciled employee is UK resident but not ordinarily resident in the UK and he is required to perform duties both inside and outside the UK then income from the non-UK activities will be taxed only to the extent which it is remitted to the UK.
It is often possible to have two separate contracts of employment, one relating to UK activities and the other to activities carried out outside the UK.
However, such contracts need to be very carefully drafted as the Inland Revenue may decide that the true position is that a larger portion of the work was done in the UK and therefore is subject to UK tax.
Offshore Trusts
The trustees of an offshore trust are subject to UK income tax only on UK source income. However, if the settlor or his spouse is able to benefit from the trust then he will be subject to income tax on any income earned by the trustees as if it were his own income. Of course, this means that foreign income received by the trustees will not be chargeable unless it is remitted to the settlor in the UK.
Where the settlor is not able to benefit from the trust he will not be chargeable to income tax on the trust income, although any UK resident or ordinarily resident beneficiaries may be subject to income tax on that income if they receive payments from the trust. These rules are very complicated and professional advice should be sought.