Discussion with Nick Rucker about the key issues international families face when moving to London.
Why do your international clients decide to have a base in London?
Many have come to London for business reasons. Others see it as an excellent base as there is favourable tax regime for foreign individuals who do not intend to make the UK their permanent home. There is also an increasingly favourable tax regime for entrepreneurs. Some of our clients choose London due to the UK’s unrivalled education system. According to Times Higher Education, the UK has a total of 15 universities in the capital named in a ranking of the world’s 200 most international universities this year. This means London has been crowned as the city that has more top universities that attract international students more than any other city in the world.
The proximity of London to the other countries that make up the European Union and the United States is also very appealing to our clients, which means they can spend less time flying and are able to arrange international meetings at short notice. Prime Central London (PCL) property has always been popular with overseas buyers. Historically, property in the PCL areas, namely Mayfair, Westminster, Kensington and Chelsea, have been excellent long term investments. Entrenched property rights with no limits on foreign buyers is a huge attraction to those wanting to make the UK their home permanently or for a medium to long term period.
What are the most common problems, international families face when coming to London?
The key issues for international families tend to be legally related, for instance: issues in relation to tax structures; visas; confidentiality; access to know-how about the London property market and so forth. Rushing in without proper advice is inadvisable and is usually very expensive to put right. It is therefore crucial for the clients to have their tax and legal advisers involved from the very outset, this could help them to save a lot of time and money in the long run.
There have been a few notable changes recently in your country’s legislation regarding the investor visa, non-dom status and residential property tax. What is the rationale behind those decisions and what message does the government want to send with those changes?
Changes to Stamp Duty Land Tax, Capital Gains Tax and Inheritance Tax on ownership of residential real estate in the UK (and some of the beneficial tax treatment enjoyed by non-domiciled individuals) are designed to make the purchase of residential property in the UK less attractive to overseas and buy-to-let investors. The housing market is a particularly important element of the UK economy and represents the vast majority of private consumer’s wealth. Whilst price increases may be desirable in isolation, the Government is concerned that the under-supply and over-demand, particularly as a result of the influx of foreign money into London and the South East, is driving prices to an unsustainable level. Following recommendations made by the Migration Advisory Committee, the Home Office made some significant changes to the Tier 1 Investor visa towards the end of 2014. The key change made by the Home Office was that the minimum threshold for the investor visa has increased from £1 million to £2 million. Although the increase is not insignificant it has not markedly deterred high net worth individuals from applying. The Investor visa remains the most attractive option for high net worth migrants to the UK due to its flexibility.
How does the London property market work? What are the steps to ownership for an international buyer?
An international buyer will need to decide the area in which he wishes to purchase. If he does not have a good knowledge of London, a property finding agent will be able to assist, particularly as such an agent will have relationships with many selling agents in London. A buying agent will be able to narrow down the list of available properties on the market (and also “off-market”) to suit the buyer’s requirements and to assist with purchase price negotiations. The buyer should appoint a lawyer whose firm will be able to provide the following advice: tax and structuring advice in relation to the purchase of any residential property; advice on the source and type of funds to be used to buy any property and the transfer of the funds into the UK; conveyancing advice in relation to the purchase. Once a suitable property is found and the buyer’s offer is acceptable, the buyer’s lawyer will review the contract pack provided by the seller’s lawyer.
They will then undertake all relevant searches and enquiries of the necessary registries and databases and report to the client before contracts are exchanged. A completion date is fixed and a 10% deposit will be paid to the seller’s solicitors. At this stage the buyer is committed to purchase and the balance of the completion funds will need to be transferred on-shore in readiness for completion. Until the point contracts are exchanged, all offers and acceptances of offer to buy and sell are made “Subject to Contract” and up to the point contracts are exchanged, either party can withdraw from the transaction at any point without liability to the other party.
About the education system
There are five stages of education in the UK: Early Years, Primary, Secondary, Further Education (College) and Higher Education (University). In England, education is compulsory for all children between the ages of 5 and 18. Once students have completed secondary school they then have the option to either stay in full time education (further education and later higher education), start an apprenticeship or work or volunteer while in part time education up until the age of 18. Upon attaining the age of 18 they then have the option to enter the workplace.
In England, the scholastic year generally runs from early September until late July of the following year. Most schools operate a three-term school year, each term divided in half by a week-long break known as “half term”.
As a result of London’s diversity and growing expatriate community, many international schools have been established to cater for the needs of international families. Expatriates will find that international schools tend to be fairly flexible and welcoming to children of all nationalities. It is important that if international families plan to apply to such schools they do so as soon as possible and usually having taken advice from an education consultant to give their child the best possible chance of getting a place at their preferred international school.
About the taxation system for international families coming to London
The UK tax regime is complicated but can be very attractive to international clients, who either come to live or who own assets and businesses, in the UK. We strongly recommend that you take tax advice before you physically arrive in the UK.
The UK tax regime for individuals depends on two factors, tax residence and domicile. Tax residence is determined by counting the number of days a person spends in the UK and testing a number of connecting factors the individual has to the UK (employment, family, home and previous periods of residence). Domicile is a complex subject of English law but in broad terms if a person was born outside the UK, doesn’t have prior family connections to the UK and does not regard the UK as their permanent home they will not be UK domiciled.
Individuals who are tax resident but not domiciled in the UK (often known as “resident non-doms”) are elligible to be taxed on the basis of a set of currently beneficial income tax and capital gains tax rules known as the “remittance basis of taxation”. The remittance basis taxes an individual’s income and gains outside of the UK only if and when those gains are brought (or “remitted”) to the UK. In essence it is a method of deferring tax until the income or gains are brought to the UK.
Temporary residents of the UK may elect to be taxed on the remittance basis for their first 7 years of tax residence in the UK. After this the UK levies a charge for those claiming the remittance basis.
Domicile also affects inheritance tax. Those domiciled (or deemed domiciled) in the UK pay inheritance tax on their worldwide assets, whereas those domiciled outside the UK are only subject to inheritance tax on their UK assets.
How does the healthcare system work?
The National Health Service (“NHS”) is the main healthcare provider in England and is made up of various departments which provide free health care to patients. It is governed by the Department of Health and includes primary care (day-to-day healthcare), in-patient care, dentistry, long term health care and ophthalmology. A person may be entitled to the NHS’s treatment for free. This entitlement depends on the length and purpose of that person’s residence in the UK, not their nationality. If a person is entitled to free NHS treatment, that person can obtain free treatment immediately – there is no qualifying period.
Aside from the NHS, the UK also has a relatively strong private health care sector funded largely by private insurance contributions. Many international clients will chose to have private medical insurance and use private health care providers as they often provide quicker and easier access to specialist health care than on the NHS.
On immigration and investor visa
UK immigration law is designed to retain talented migrants in the UK and attract high net worth individuals to re-locate to the UK. Some of the immigration categories, such as Tier 1 Investor visa, have also provided a route for those individuals to settle permanently in the UK. With most of the visa categories (including the investor visa), it is also possible for the main applicant to bring his or her family members to the UK.The Tier 1 investor visa is a very popular visa among high net worth individuals. It is granted initially for three years and four months. An application to extend the visa must be made at three years. A further two years can then be obtained as a Tier 1 Investor. At five years, it is possible to apply for permanent residency. It is also possible to obtain permanent residency more quickly with investments of £5 million (three years) or £10 million (two years). Whatever the case may be, our dedicated immigration advisers are able to provide you with our practical expert legal advice that is tailored to your needs.
About Nick Rucker:
Nick is a partner at Irwin Mitchell Private Wealth. He helps families and individuals (and their businesses) from outside the UK explore their options when they consider a move to London.