Amit Roy

Limit on non-resident’s UK income tax liability

Special rule limiting non UK resident’s tax liability.

A non-resident income tax liability is limited¹ :

1. To sum of A and B below:

A means tax deducted at source in respect of Disregarded Income.²

B means amount of tax which would otherwise be chargeable on non-disregarded income.

2. Tax liability computed under normal rules.

Final tax liability is lower of 1 or 2.

Example – Rash Bose is a non-resident. He has net UK rental income of £2,150 and un-taxed interest income of £20,000.

Computation of income for the tax year ended April 2022.

Rental Income [non-disregarded income]			£2,150
Interest Income [disregarded income]			£20,000
Total			£22,150
Less Personal Allowance (no personal allowance for non-resident)			Nil
Taxable Income			£22,150
Tax Calculation
Starting Savings Rate	£2,850	0%	£0
Personal savings allowance	£1,000	0%	£0
Basic rate	£18,300	20%	£3,230
Tax as per usual rates		(1)	£3,230
Limit to liability calculation
Tax on non-disregarded income (Rental Income)	£2,150	20%	£430 (2)
Income tax liability limited to lower of (1) or (2)			£430

Conclusion – in the above example, tax payer pays tax only on their UK rental income.

Bonus

Further, above treatment is not available in case individual is treated as non-resident for only part of the year i.e. in case of split year treatment.
Where a non-resident receives dividend from a UK company he is treated as that he has already paid tax @ dividend ordinary rate.⁴ But this credit is not repayable.

Notes:

ITA 2007 Sec 811
Disregarded income includes interest, dividends from UK companies, state pensions etc. [section 813 ITA 2007]
Non-disregarded income includes rental income.
ITTOIA 2005 Sec 399

Consultant receiving shares instead of monies

Our client (a limited company) provides consultancy services. Recently they provided services to a company based in Portugal. Portuguese company paid them in shares instead of monies.

Question 1: Whether shares received will be considered trading income?

Answer:

Corporation tax

Yes, the value of trading income received in non-monetary form is taxable in full as trading income. See section 49A CTA 2009; as inserted by FA 2016. HMRC simply enacts in legislation, 1948 House of Lords decision in Gold Coast Selection Trust Ltd v Humphrey (30TC209). See Explanatory Notes to FA 2016; Volume 1 Page 177.

VAT

As services are provided out of UK, VAT is not chargeable. See VAT Notice 741A Section 12.

Accounting

As per FRS 105 (micro entities) Section 18 Revenue Clause 18.7:

(b) …at the fair value of the goods or services given up

Conclusion:

Thus, if the client receives shares or any other goods or services, client should value the items received and enter it as trading income in its books.

Question 2: What is the value of shares received?

We asked the client to estimate the number of hours they will spend on this assignment and multiplied it by their usual hourly rate to get the trading income.

Bonus

You may have noticed that client would need to pay corporation tax now on an estimated income, when they have not received any cash funds. These shares are long term investment.

Employee Benefit – life insurance policies for employees

Group life insurance is a common benefit provided by employers, this blog explains its tax implications.

Group life policies are often purchased by employers see IPTM1125

Employees

Group life policies which insure individuals up to the age of 75 and only provide death benefits for the dependants of that person will not give rise to income tax charges see IPTM7020

For Full guidance see IPTM 7015 to IPTM 7060

A contribution paid by an employer in respect of their employee scheme is not taxable as earnings for the employee concerned; see PTM031100

Employers

Tax relief on employer contributions is given by allowing contributions to be deducted as an expense in computing the profits of a trade and so reducing the amount of an employer’s taxable profit ;
see PTM043100 and see BIM45525

Tax relief can only be given on contributions that have actually been paid. The amount shown in the profit and loss account in respect of the obligations of defined benefit schemes may be substantially different from the amount of contributions paid to the scheme, but it is only the amount actually paid that can be considered for tax relief. see PTM043200

Contributions in respect of members who are directors who are shareholders or connected to a controlling director

Broadly, the employer’s contribution will be wholly and exclusively for the purposes of the trade if the contribution paid in respect of a controlling director or a connected employee is in line with a contribution that would have been made for an unconnected employee in a similar situation.

Case law – Beauty Consultants Ltd v Inspector of Taxes [2002] SpC 321 see BIM45530

General guidance on employer’s contributions in the Business Income Manual at BIM46000.

Private residence relief in case of inherited property

PPR Relief on inherited property

In a recent case an individual died, say in 2016. His home was inherited by his two daughters Alice and Beatrice. In 2018, Alice moved in the house and started living there as her main residence.

In 2020 Alice bought the share of Beatrice to own the house fully. House was finally sold in 2022.

Question 1. Since which date will Alice get the private residence relief.

Answer: Alice will get the relief from 2018 when she moved in the house’ see Hector and Miss Kitka example on Tax café website. see also HS283 – section `Who qualifies for relief ` it states You’re also entitled to relief if you jointly own the freehold or lease with someone else.

Question 2. What will be the period of ownership for Alice.

Answer: It will be 2016. As under s222(7) TCGA92, where different interests are held at different times the period of ownership begins at the date of the first acquisition on which expenditure is incurred which would have been deductible in computing any gain. see CG64930

Pension contributions savings

A. Pension contributions for individual earning between 50k and 60k and paying high income benefit charge

We wish to demonstrate the savings by an example below. Say, Jack earns 55k a year and pays high income benefit charge. We have prepared his tax calculation showing two scenarios one without and one with pension contributions.

	Tax without Pension			Tax with Pension
Income	55,000			55,000
Less: Personal Allowance	12,570			12,570
Taxable Income	42,430			42,430
	Rate	Band	Amount	Rate	Band	Amount
Tax Payable	20%	37,700	7,540	20%	40,200¹	8,040
	40%	4,730	1,892	40%	2,230	892
	Total	42,430	9,432		42,430	8,932
High income child benefit	566⁵			283⁵
Tax due	9,998			9,215
Tax savings	783²
Pension top up	500³
Total savings	1,283

Notes:

Say, Jack makes a pension contribution of 2,000 with HMRC top up of 20% it is grossed up to 2,500 (2000 divided by 0.80). His basic rate band increases from 37,700 to 40,200 (37,700 + 2,500)
Difference between 9,998 and 9,215.
20% pension top-up claimed by the Pension company on tax payer’s behalf.
Thus, on a pension contribution of 2,000; Jack saves 1,283 that is c64%
High Income child benefit computation

Gross Income	55,000	55,000
Less: Gift Aid	0	0
Less: Pension contribution	0	2,500
Adjusted net income	55,000	52,500
Less: Threshold	50,000	50,000
Net	5,000	2,500
Dividend by 100	50%	25%
Child benefit received	1,133	1,133
High income child benefit	566(50% of 1,133)	283(25% of 1,133)

B. Pension contributions for individual earning between 100k and 125k

	Tax without Pension			Tax with Pension
Income	105,000			105,000
Less: Personal Allowance	10,070¹			12,570
Taxable Income	94,930			92,430
	Rate	Band	Amount	Rate	Band	Amount
Tax Payable	20%	37,700	7,540	20%	40,200²	8,040
	40%	52,230	22,892	40%	53,480	21,892
	Total	94,930	30,432		42,430	29,432
Tax savings	1000³
Pension top up	500²
Total savings	1,500

Notes:

Reduced Personal allowance computation

Gross Income	105,000	105,000
Less: Pension contribution	0	2,500
Adjusted net income	105,000	102,500
Less: Threshold	100,000	100,000
Net	5,000	2,500²
Divided by 2	2,500	1,250
Standard Personal allowance	12,570	12,570
Reduced Personal allowance	10,070	11,320

Say, Jack makes a pension contribution of 2,000 with HMRC top up of 20% it is grossed up to 2,500 (2000 divided by 0.80). His basic rate band increases from 37,700 to 40,200 (37,700 + 2,500)
Thus, on a pension contribution of 2,000; Jack saves 1,500 that is c75%

C. Pension contributions for individual earning over c125k

	Tax without Pension			Tax with Pension
Income	130,000			130,000
Less: Personal Allowance	0			0
Taxable Income	130,000			130,000
	Rate	Band	Amount	Rate	Band	Amount
Tax Payable	20%	37,700	7,540	20%	40,200²	8,040
	40%	92,300	36,920	40%	89,800	35,920
	Total	130,000	44,460		42,430	43,960
Tax savings	500³
Pension top up	500²
Total savings	1,000

Notes:

Say, Jack makes a pension contribution of 2,000 with HMRC top up of 20% it is grossed up to 2,500 (2000 divided by 0.80). His basic rate band increases from 37,700 to 40,200 (37,700 + 2,500)
Thus, on a pension contribution of 2,000; Jack saves 1,000 that is c50%

Point to note:

Pension contribution needs to be made in the tax year i.e. before 5^th April 2023 to take benefit of these savings for the tax year ended 5^th April 2023. This means tax relief can be claimed for a contribution only in the tax year in which payment is made. FA 2004 Sec 188 (1)

Salary sacrifice pension contributions are even more beneficial as tax payer saves both tax and National insurance.

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