UK Immigration and Tax Update
Indefinite leave to remain: dependant partners no longer able to piggy back on the main applicant’s application
What has changed?
There has been a change to the residence requirements for points based system (PBS) partners which will affect anyone applying for entry clearance or leave to remain on or after 11 January 2018. From 11 January 2018 PBS dependant partners will themselves need to meet UK residence requirements if they want to apply for indefinite leave to remain (ILR) in the future. They can no longer rely on their main applicant partner meeting the requirements. To be within the residence requirements to be eligible for ILR, a person must be absent from the UK for not more than 180 days a year. Spending that amount of time in the UK will almost certainly make them UK resident for tax purposes.
Who is affected?
The change to the rules applies to all Tier 1 (Investor visa and Entrepreneur visa) and Tier 2 (Work visa) dependant partners, but is likely to affect partners of Tier 1 (Investors) the most. The change will affect new applicants applying for their first PBS partner visa/residence permit and those extending their stay where that extension takes place on or after 11 January 2018.
For example, someone applying on 1 June 2018 for an extension to the Tier 1 (Investor) partner visa would be granted a two year extension if the application is made in the UK. The applicant would then need to meet the residence requirements and show that their absences for each year are not more than 180 days if they want to obtain ILR after the required period of residence in the UK, subject to meeting their Tier 1/Tier 2 visa requirements. For UK immigration purposes, the date of arrival and date of departure from the UK are counted as days of presence in the UK.
Reviewing your tax position
Individuals applying for their first UK visas or extending their existing visas after 11 January 2018 should consider whether their dependant partner can meet the new residence requirements. If so, almost inevitably their dependant partner will acquire tax residence status in the UK. This makes pre-arrival tax advice in the UK and their home jurisdiction more important than ever. If both partners become tax resident in the UK, they should plan their tax affairs well in advance of their “move” to the UK (i.e., prior to the first UK tax year of residence). As the UK tax year runs from 6 April to 5 April, a family “moving” to the UK in September 2019, for example, should obtain tax advice and consider their strategy well before 6 April 2019.
Those who are already in the UK should review their tax planning strategy as soon as possible. Before the changes, many main applicants relied on non-taxable gifts from their non-UK resident dependant partners to support their UK expenditure. This strategy might not work following changes to the immigration rules, if the formerly non-resident partner decides to spend significant amounts of time in the UK in order to be eligible for ILR.
Tax planning may provide an opportunity to minimize tax exposure in the UK by relying on either the so-called remittance basis of taxation available to UK resident non-domiciled individuals (newcomers from outside the UK will almost always fall into this category) or a double tax treaty between the UK and their home jurisdiction, which would be relevant if they also remain tax residents in their home jurisdiction.
For example, if the UK tax resident dependant partner claims the remittance basis of taxation, he or she will only be liable to UK tax on non-UK income and gains which are brought into, or “remitted”, to the UK. That same individual will have to declare and pay UK tax on the amount of his non-UK income/gains remitted to the UK by him or certain related persons, including his or her spouse, any children/grandchildren under 18 and certain trusts and companies).
On the other hand, a dependant partner who is tax resident both in the UK and their home jurisdiction, instead of claiming the remittance basis of taxation in the UK for the tax years in question, may be able to claim treaty relief if there is a suitable double tax treaty between the two countries and all relevant conditions for claiming the relief are met. Certain types of income or gains for the relevant period may then be taxed in the home country only. This might have certain advantages in comparison with claiming the remittance basis of taxation as the dependant partner would be able to remit certain types of income/gains arising in the home country to the UK without additional taxation in the UK. We expect that double tax treaty relief will be used more frequently following the immigration changes.
ILR for the children
If the dependant partner cannot meet the new residence requirements, the family should be aware that this might affect not only the partner’s, but their children’s immigration position as well. In order for children to acquire ILR, both parents are usually required to apply for ILR at the same time. If one of the parents cannot meet the residence requirements for ILR, a possible solution would be to consider one of the EU citizenship programs (for instance, Cyprus or Malta) if the family intends to move to the UK before the end of the Brexit transitional period (i.e. before the end of December 2020). This is because ILR residence requirements are not as onerous for EEA nationals and children can qualify for ILR without both parents applying.
Further changes to the day count calculation
A further immigration change is in relation to how absences are calculated. This applies to main applicants as well as dependant partners. Previously absences were calculated on a fixed 12 months basis. Take as an example an individual who has spent five years in the UK from June 2012 to June 2017 and makes the ILR application on 1 June 2017. Under the old rules, the immigration authorities would assess the number of days of absence from the UK in the period 2 June 2016 to 1 June 2017, the period 2 June 2015 to 1 June 2016 and so on. On the new basis, absences are calculated in any 12 month period. For example, where an individual has spent five years in the UK from June 2013 to June 2018, the immigration authorities can pick any 12 months in the five years, such as March 2015 to March 2016 or August 2013 to August 2014 and so on. This change is also retrospective. Anyone applying for ILR from 11 January 2018 is caught by these new changes. If days of absence exceed what is permitted on the new calculation, but those absences were prior to the change taking place on 11 January 2018, then the immigration authorities may exercise discretion, although detailed representations would need to be made.
This change will be a particular problem for Tier 1 (Investor) clients who tend to travel more often. To avoid falling foul of the new rules, it is important to keep an up to date record of absences so the total rolling absences can be checked and to spread absences throughout the year, avoiding lengthy absences if possible.
Clients should exercise care when considering what steps they should take regarding their immigration applications and take both immigration and tax advice (in the UK and in the country from which they are moving) well in advance of their move to the UK. This briefing provides a brief overview only and is not a substitute for proper legal or tax advice. Expert, tailored immigration and tax advice should be taken which reflects the individual’s particular circumstances.
For more information, please contact Rose Carey via firstname.lastname@example.org or +44 (0)20 7427 6524.
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