If you are a business owner or entrepreneur from India planning to move to the UK, understanding how the tax laws work here is a crucial step.
Failing to do so could result in penalties from the regulatory body, HM Revenue & Customs (HMRC), or paying more tax than necessary – which is never a good thing.
HMRC is the body responsible for regulating and enforcing taxes in the UK, and it is currently intensifying its scrutiny of offshore income and gains
This means you’ll want to make compliance an absolute priority during your move.
Determining your tax status
Your tax liabilities in the UK primarily depend on your residence and domicile status.
These factors significantly affect your Income Tax, Capital Gains Tax, and Inheritance Tax obligations – some of which you may not be used to paying in India.
Your residency status is mainly determined by the amount of time you spend in the UK and directly influences your tax responsibilities.
Domicile status is a more complex concept, linked to your permanent home or long-term intentions regarding your place of residence.
The normal domicile rules, which have applied for many years in the UK, have now changed.
While residence status can frequently change based on your physical presence in the UK, domicile status is more enduring and less prone to frequent changes.
As a UK resident, you are generally taxed on your worldwide income and gains.
However, if you are non-UK domiciled, your overseas income is only taxable in the UK if brought into the country.
(The remittance basis charge no longer applies).
You can no longer claim non-domicile status beyond four years, after which your worldwide income and gains will be taxed as well as your UK-based income and gains.
The Statutory Residence Test is essential for determining your UK tax residency status, considering the number of days you spend in the UK and your ties to the country.
Taxes you’ll have to pay
When moving to the UK, it is essential to understand the various taxes you will be subject to and the associated rates.
Here is a comprehensive overview of each liability and its rates:
Income Tax
Income Tax is charged on your earnings, including wages, business income, and other sources of income.
The UK operates a progressive tax system with the following rates for the tax year 2024/25:
- Personal allowance: Up to £12,570 (tax-free)
- Basic rate: 20 per cent on income from £12,571 to £50,270
- Higher rate: 40 per cent on income from £50,271 to £125,140
- Additional rate: 45 per cent on income over £125,140
Non-UK domiciled residents will not need to pay this on their foreign income and gains for the first four years.
Capital Gains Tax
Capital Gains Tax (CGT) is applied to the profit made from selling assets, such as property or shares.
The rates depend on your total taxable income:
- Basic rate taxpayers: 10 per cent on gains
- Higher and additional rate taxpayers: 20 per cent on gains
The rates differ for property assets with an 18 per cent rate for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers.
The annual CGT allowance for individuals is £6,000, below which you won’t be liable for taxation.
Inheritance Tax
Inheritance Tax (IHT) is levied on the estate of a deceased person.
The standard rate is 40 per cent, applied to the part of the estate above the £325,000 threshold.
However, there are various reliefs and exemptions, such as the residence nil-rate band, which can increase the threshold.
It’s always best to discuss this one with a qualified tax adviser.
National Insurance Contributions
National Insurance Contributions (NICs) are payments made to qualify for certain benefits and the State Pension.
The rates for employees in the tax year 2024/25 are:
- Class 1 (Employees):
- 8 per cent on earnings between £12,570 and £50,270
- 2 per cent on earnings above £50,270
- Class 2 and Class 4 (Self-employed):
- Class 2: £3.45 per week
- Class 4: 8 per cent on profits between £12,570 and £50,270 and 2 per cent on profits above £50,270
Value Added Tax
Value Added Tax (VAT) is a consumption tax applied to most goods and services.
The standard rate is 20 per cent, with reduced rates of 5 per cent and zero per cent for certain items like children’s clothing and basic foodstuffs.
Council Tax
Council Tax is a local tax on residential properties, calculated based on the property’s value and the local council’s rates.
The rates vary significantly depending on the location and property band.
Given the complexities of UK tax law, engaging a specialist tax adviser is highly recommended and you’ll get access to expert guidance by doing so.
Your tax adviser will ensure your tax planning is efficient and compliant with UK regulations.
You’ll ideally want to begin your tax planning in the tax year before your move to establish a solid financial foundation upon arrival in the UK.