Under western eyes
More than 300,000 people from Russia and the CIS countries have immigrated to the UK,1 and it’s easy to understand why: the UK is one of the most attractive countries in the world from a business and investment standpoint; it also has a great historical heritage, culture, traditions and one of the oldest and most stable legal systems. Russian and CIS families are keen to settle in a country that is stable, prosperous and conservative in outlook. The educational opportunities on offer to their children provide a further incentive, as does the short flight (three hours) to Moscow.
For Russian and CIS high-net-worth individuals (HNWIs), thoroughly planning their move to the UK with a professional local advisor is the key to success, whether they want to invest in assets or funds, or relocate their family to the UK. A key challenge for HNWIs moving from jurisdictions such as Russia and the CIS is the need to understand, plan for and deal with the know-your-client (KYC) procedures and anti-money laundering due diligence.
Over the past few years, the immigration process for the wealthiest Russian and CIS investors wishing to relocate to the UK has changed: simplified entry barriers and faster processing have meant that the number of foreign investors moving to the UK has doubled. Russian applicants form the biggest group of visa applicants: 24 per cent of all successful investor visas issued in 2012 were issued to Russians.2 The Tier 1 Investor visa is the Russian HNWI’s favoured option, as it requires the ability to invest GBP1,000,000 in the UK but does not require confirmation of a job offer or successful completion of a language test.
To benefit from the advantageous UK tax regime, appropriate steps have to be taken before a potential non-UK domiciliary arrives in the country. This will ensure that their exposure to UK tax is minimised once they become a UK resident.
Tax planning should take place in the tax year before the individual moves to the UK (although in certain circumstances it may be possible to rely on split-year treatment). For example, if an individual intends to move to the UK during summer 2014, the necessary structuring should be in place before the tax year ending 5 April 2014.
Two relatively simple strategies are:
- Ring-fencing income or gains arising to a non-UK-domiciled individual before they become a UK resident. In general terms, all income and gains can be brought into the UK without incurring a charge to UK tax, provided the funds are kept separate from post-arrival income or gains. Any pre-arrival funds that the individual is planning to bring into the UK while living there should ideally be separated from post-arrival funds. A careful review is important to ensure that the segregation is carried out correctly.
- Rebasing assets standing at a gain. If a capital asset is sold after an individual becomes UK-resident, it can give rise to a UK capital gains tax liability. If instead the asset is rebased (e.g. by selling or gifting to a connected entity) before the individual arrives in the UK there will be no UK tax liability on the pre-arrival element of the gain if and when the asset is subsequently sold.
Immigrants who would rather not ring-fence a large cash sum for the foreseeable future can also consider more sophisticated planning. Lending cash to an investment vehicle allows funds to be invested and clean capital withdrawn as required for UK living expenses. Great care should also be taken to ensure that funds are used properly; it is all too easy for foreign income to be remitted accidentally, by using the wrong credit card or paying UK bills with money earmarked for overseas use.
The UK property market has proven to be highly attractive to Russian HNWIs; they have become some of the most active buyers in London. In the past financial year, 8.5 per cent of all UK properties worth more than GBP2,000,000 were purchased by Russians. Buying property, particularly in prime central London, is often a competitive process, as short supply has made the most desirable properties greatly sought after. It is vital to have a full understanding of the subtleties of the UK property market before entering real estate transactions: property law, corporate structuring, tax and property finance all have to be considered. The recent attacks on corporate ownership may mean many of the more sophisticated structures are abandoned, but the knock-on effect can be a greater exposure to inheritance and other taxes, which should be considered and addressed.
Planning is a key factor in relocating to the UK, whether it is initial preparation for the KYC procedure, immigration, pre-residency or tax planning. Legal and financial advisors should be appointed to prepare a tailored solution before arrival and later to plan personal financial provision for the future.
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