2022/N°12/Diritto tributario internazionale e dell'UE/Taxation of non-residents in the UK: domestic aspects
Gabriele Schiavone (2022) Taxation of non-residents in the UK: domestic aspects . Novità fiscali (12) . pp. 602-607 ISSN 2235-4573

Diritto tributario internazionale e dell'UE

12/2022

Taxation of non-residents in the UK: domestic aspects

This article summaries the most relevant income categories realized by non-residents individuals and companies in the UK, providing general rules and compliance aspects

Gabriele Schiavone
Gabriele Schiavone

Founder, ACA, BFP, CFE Tax Advisers Europe
SGS & Partners, London
www.sgs-partners.com

This article sets down the principles of taxation of non-residents in the UK describing the main categories of income relevant for non-resident individuals and companies assuming a prevalent domestic point of view. We have first introduced the concept of “trading in the UK”: since a trade in the UK is the pre-requisite for any tax charge, it is relevant to understand in depth such concept, which being not provided by law, shall be shaped by reference mainly to law cases. We have analysed in detail also some practical consequences of “trading in the UK” concept, for instance in relation to non-resident partners and investment manager exemption regime. After having outlined the main tax aspects of investment income, the article eventually deals with capital gain taxation with specific reference to disposal of real estate and “rich properties” company`s shares.

Indice

  1. I. I. General principles on taxation of non-residents
  2. II. II. Trading in the UK
  3. A. Branch, agency and permanent establishment
  4. B. Partnerships and non-resident partners
  5. C. Compliance requirements
  6. D. Investment manager exemption
  7. III. IlI. Employment income and artists/sportsmen remunerations
  8. IV. IV. Investment income and outbound payments
  9. A. Dividends
  10. B. Interests
  11. C. Royalties
  12. V. V. Rental income
  13. VI. VI. Capital gain taxation
  14. A. Disposal of UK land and properties
  15. B. Non-resident capital gain tax and compliance aspects
I. I. General principles on taxation of non-residents

Non-residents taxation is based on domestic rules and on international provisions contained in double tax treaties. The focus of this article would be on domestic laws and practices. There are four main categories of income[1] that non-residents may be taxed on:

  1. Profits of a trade or profession which is not carried out wholly outside the UK;
  2. Earned income on UK pensions and employments where duties are carried out in the UK (Income Tax Earnings and Pensions Act [ITEPA] 2003, s. 27);
  3. Investment income (Income Tax Act [ITA] 2007, s. 811);
  4. Income deriving from real estate activities and assets (rents and capital gains).

While categories sub b), c) and d) are subject to a set of statutory rules quite well-defined, it is complex to determine whether a trade or profession – concepts barely defined in the legislation – is carried out in the UK, being the area rich in law cases and different nuances and perspectives.

It is of paramount importance to understand, for those not accustomed to deal with UK tax laws, two basic principles: firstly, that there is no charge to UK tax if there is no trade therein (ITTOIA05/S6(2) and secondly that the concept of trade may be not necessarily linked to the existence of a permanent establishment[2].

For procedural and compliance purposes, it is worth summarizing the decisional process in a four basic questions steps as follows: (i) there is a charge under domestic legislation on the activities?; (ii) if yes, if the non-resident is a resident of a state with which the UK has a double taxation agreement, such a treaty restricts the domestic charge?; (iii) how much are the chargeable profits that can be taxed in the UK?; (iv) having established that there is a domestic charge and having taken account of the effects of the relevant treaty, how do we assess and collect any tax that is due?

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