Discover tax-saving opportunities when relocating from the UK to a low-tax jurisdiction. Our guide covers practical tips, benefits, and tax implications.

Introduction

Are you considering a move from the UK to a low-tax jurisdiction? Navigating the complexities of tax management while relocating can be daunting, but with the right guidance, you can make informed decisions to maximise tax benefits and minimise liabilities. In this comprehensive guide, we will set out the practical considerations, tax implications, and benefits of moving to a low-tax jurisdiction, with a focus on the British Overseas Territory of Gibraltar.

What is a low-tax jurisdiction?

A low-tax jurisdiction is a country or territory with significantly lower taxes compared to other regions, making it an attractive destination for individuals and businesses seeking to optimise their tax liabilities. These jurisdictions often offer favourable tax rates on income, capital gains, corporate profits, and inheritance, if not complete exemptions on certain types of taxes. Additionally, these jurisdictions often have favourable regulatory environments, stable economies, and robust infrastructure in place to further incentivise relocation. Some examples of low-tax jurisdictions include the UAE, Cyprus, Seychelles and Gibraltar.


Practical Considerations Before Moving to a Low-Tax Jurisdiction

The UK Statutory Residence Test (SRT)

Introduced in 2013, the UK Statutory Residence Test (SRT) is a set of rules used to determine an individual's tax residence status in the UK. If you are considering moving abroad, it is important that you understand this test. Spending 183 days or more in the UK within a tax year typically results in UK residency. However, even fewer days in the UK can lead to residency under specific circumstances. The test has three main categories: the automatic overseas test, the automatic UK test, and the sufficient ties test. Each category has its own criteria, and individuals must meet the conditions of one category to determine their tax residency status. The SRT is essential for individuals moving to or from the UK, as it determines their tax obligations.

The Automatic Overseas Test

If an individual meets any of the specified conditions of the Automatic Overseas Test, they are automatically classified as non-UK-resident for the tax year. These conditions include the individual having minimal presence in the UK, either by spending fewer than 16 days in the UK while being a resident in one or more of the previous three tax years, spending fewer than 46 days in the UK if they were not a resident in the previous three tax years, or working full-time overseas with a limited UK presence of fewer than 91 days.

The Automatic UK Test

Under the Automatic UK Test, individuals are automatically classified as UK residents for the tax year if they meet specific criteria. These criteria include spending 183 days or more in the UK within the tax year, owning a UK home for more than 91 days with a presence on at least 30 days, or engaging in continuous full-time UK employment spanning 365 days or more without a significant break.

The Sufficient Ties Test

The Sufficient Ties Test determines tax residency status for any individuals not covered by the Automatic Overseas Test or the Automatic UK Test. This test evaluates various ties an individual may have to the UK, including family, accommodation, work, and duration of presence, to determine their tax residency position. The ties considered vary depending on whether the individual was a resident in the UK for any of the previous three tax years.


Temporary Non-Residence (TNR) Anti-Avoidance Regulations

Temporary Non-Residence (TNR) anti-avoidance regulations aim to prevent UK-residents from exploiting short periods of non-residency to evade UK taxation on income or capital gains. This typically occurs with distributions from close companies, chargeable event gains, or pension lump sum distributions made outside the UK during the non-residency period. The TNR rules come into effect if the individual has been UK-resident for at least four of the seven years before their departure from the UK and becomes UK-resident again within five years of leaving. It's crucial to understand and consider these regulations and their potential implications when considering relocation.

Tax Implications of Moving to a Low-Tax Jurisdiction

Corporate Exit Tax

When contemplating a move from the UK, businesses must consider corporate tax exit charges, which could occur during asset or operations transfers. These charges are designed to capture gains from capital assets, unrealised profits, and the value of trading stock. As a result, careful consideration and planning are essential when navigating the complexities of corporate tax obligations during relocation. Fortunately, Gibraltar offers businesses low corporate tax rates, providing a favourable environment to optimise tax liabilities.

Individual Exit Tax

The UK doesn't typically impose exit taxes on individuals, however there is an exception known as the re-entry charge. This charge applies if an individual emigrates and spends less than five years outside the UK before returning, making them liable for capital gains tax on any asset disposals made during their time abroad. Relocating from the UK to a low-tax jurisdiction can offer many benefits, but it also requires careful consideration of all financial aspects. This includes potential impacts on assets subject to capital gains and income tax, investment portfolios, state benefits, pension plans, private residence, as well as inheritance tax planning and wills.

Tax Summary for the UK

Income Tax

Income tax in the UK is set based on income levels:

£12,570 tax free allowance.

£12,571 to £50,270: 20%

£50,271 to £125,140: 40%

£125,140+: 45%

Corporate Tax

Corporate tax is charged on company profits:

19% on profits up to £50,000

25% on profits over £250,000

For profits between £50,000 and £250,000, companies can claim marginal relief, with a gradual increase in tax between 19% and 25%.

Capital Gains Tax

Capital gains tax is applied to the profit made from selling or disposing of assets:

For basic rate taxpayers, the rate is 10% on gains and 18% on residential property.

For higher rate taxpayers, the rate is 20% on gains and 24% on residential property.

Inheritance Tax

Inheritance tax is charged on the estate of a deceased person:

0% up to £325,000 or if you leave everything to a spouse, civil partner, children, grandchildren or charity.

40% is the standard rate on the value of the estate above the threshold.

36% is the reduced rate if 10% or more of the estate is left to charity.

Value Added Tax (VAT)

VAT is a consumption tax on most goods and services:

20% standard rate.

0-5% reduced rates for certain goods and services.

Tax Summary for Portugal

For individuals, Portugal's income tax system features progressive rates based on income brackets, ranging from 13.25% for incomes up to €7,703 to 48% for incomes over €81,199. High earners also face a solidarity surtax of 2.5% on income over €80,000, and 5% on income over €250,000. Capital gains tax adds 50% of the gain to income, with certain exemptions for reinvestments. For businesses, corporate tax is a flat rate of 21%, with surcharges for location and high profit levels, and exemptions for start-ups. VAT in Portugal has a standard rate of 23%, with reduced rates of 6-13% for certain goods and services.

For more information and expert advice regarding taxation in Portugal, visit the Portutax website https://www.portutax.com/

Tax Summary for Gibraltar

In Gibraltar, standard income tax rates are set at 20%, significantly lower than in the UK and Portugal. Corporate tax is also capped at 10%, offering a competitive advantage for businesses. Furthermore, Gibraltar has no capital gains tax, wealth tax, interest income tax, gift tax, inheritance tax, or VAT.

Benefits of Relocating to a Low-Tax Jurisdiction

Relocating to a low-tax jurisdiction like Gibraltar from the UK or Portugal offers a number of tax benefits for both businesses and individuals. For businesses, Gibraltar stands out due to its absence of capital gains tax, wealth tax, tax on interest income, and VAT. This allows companies to maximise profits and reinvest in growth and innovation. With a corporate tax rate capped at 10%, businesses enjoy significant tax savings, improving their competitiveness. Furthermore, Gibraltar's robust infrastructure, strategic location, and highly skilled workforce further enhance business operations.

For individuals, Gibraltar’s progressive income tax system, with a standard rate of 20%, is considerably lower than in the UK and Portugal, enabling individuals to retain a larger portion of their income. The lack of capital gains tax, gift tax and inheritance tax also provides advantages for personal wealth management, ensuring that assets can be preserved and passed on without tax burdens. Additionally, Gibraltar’s high quality of life, with a warm Mediterranean climate, excellent healthcare, and a safe and friendly local environment, makes the territory an attractive place to live and work.

Summary

Relocating from the UK to a lower tax jurisdiction like Gibraltar offers substantial financial benefits for both businesses and individuals. With its absence of capital gains tax, inheritance tax, and VAT, Gibraltar provides a highly attractive environment for optimising tax efficiency and preserving wealth. Additionally, Gibraltar's supportive business policies, strategic location, and high quality of life make it an ideal destination for entrepreneurs seeking growth opportunities. Proper planning and understanding of tax implications, including exit charges and the UK Statutory Residence Test, are crucial when considering this move.

Our dedicated team of experts at Gibro Group can help you manage your relocation with ease, ensuring a smooth transition to Gibraltar. Get in touch with us today via phone +350 200 76222 or email enquiries@gibro.com.

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