Industry commentators have called on the government to look at the bigger picture and address unresolved taxation and immigration issues as the chancellor mulls changes to double taxation rules to attract individuals with US interests to the UK.
Following the abolition of the non-dom regime a year ago, individuals receiving income from a US limited liability company (LLC) who move to the UK must pay tax on both sides of the Atlantic.
Rachel Reeves is seeking to make amends with internationally mobile professionals, such as American citizens who have left the Gulf but are reluctant to move back to the US, positioning the UK economy as a haven.
Marc Acheson, global wealth specialist at Utmost, welcomed the move but caveated that more needs to be done to attract and retain high net worth individuals.
“Any shift in government thinking in repositioning the UK as a ‘safe harbour’ for wealth is to be welcomed and this upcoming consultation on proposed changes to double taxation for UK/US residents is a start,” he said.
“However, such measures shouldn’t be considered in isolation, and the UK needs to do more to attract a broader range of wealthy families and offer them an incentive to stay long-term.
“Crucially, the UK needs to offer a more attractive tax regime which plays a central role in relocation decisions, particularly for families considering putting down lasting roots.”
Matthew Harrison, partner at Vialto Partners, said while a consultation would be well received by UK resident owners of US LLCs, HMRC’s stance on the UK taxation of US LLCs is “highly problematic for UK residents”.
Although LLCs are usually ‘transparent’ for US tax purposes, HMRC consider them ‘opaque’ for UK tax purposes, he explained.
“This means the US taxes the income arising to the LLC, and the UK taxes distributions from the LLC without any credit for the US tax, thus giving rise to double taxation – typically exceeding 60% overall,” Harrison said.
“The problem is not the UK tax rules; it is HMRC’s published position. HMRC have been clear they will challenge any taxpayer who submits a UK tax return on the basis that an LLC is transparent. This makes it very difficult for UK resident owners of LLCs to determine the correct UK tax analysis.”
Other difficulties relating to the UK taxation of LLCs include confusion as to whether they have share capital, Harrison added.
“This is a problem with the UK tax rules rather than HMRC’s published position, and so any initiative from the UK government to address the UK taxation of LLCs would be most welcome and would no doubt make the UK more attractive to certain individuals.”
Charlie Sosna, head of private wealth and tax at Mishcon de Reya, described the consultation as “a critical opportunity’ but said the government needs to move swiftly and address other stumbling blocks to avoid missing out to other countries who are already making moves to attract wealthy families from the Middle East.
“The government should step back and ask itself what role it wants wealthy individuals to play in the UK and whether the current tax and immigration regimes support this,” he said.
“The UK’s immigration regime is in fact a more pressing challenge than tax complications. For instance, those looking to leave the Gulf quickly may be put off by the UK’s complicated immigration route. A promised review on reintroducing the investor visa has fallen silent.”
Sosna added: “There are also practical considerations for those in the Gulf moving to the UK. For many, the lack of a domestic worker visa that would allow them to bring the domestic help they see as family has been a major stumbling block and pushed them towards moving to more accommodating jurisdictions.”
