Moving back to the UK, what's the best arrangement for tax?

Randvegeta

Hello,

My parents have decided to move back to the UK after spending several years in Hong Kong.

Officially/technically, both my parents work for the same company, but my Dad earns the bulk of the money (he holds a senior position in the company).

The company is registered overseas in HK and it will remain there as 'HQ'. My parents are moving back to the UK for personal reasons.

When moving back to the UK, my Dad would be in the higher tax bracket and I have suggested it may be best to divide the income between my parents equally so that both are basic rate tax payers.

Is there any other way of cutting the tax burden legally? Is housing allowance a taxable benefit? For example, the company could provide housing in the UK instead, and if not tax deductible then would of course represent some savings.

What about national insurance? I understand that as an employee, national insurance is paid by both the employee and employer, but when the company is registered overseas, how much is paid for national insurance and by whom? If the company is responsible for paying national insurance (even as an overseas company), would it be better to work as a contractor and invoice the company rather than as an employee?

Any other areas of tax savings available? They will have extremely flexible circumstances so just about anything is possible....

Cook_County

Having no income at all would be the most efective way of paying no income tax.

What plans are in place, however, for inheritance tax?

heretolearn_2

Why don't your parents want to pay the tax they should? I'm all for people paying minimum tax but there's a difference between avoiding tax you don't have to pay (but maybe don't know how to reduce it) and evading tax to not pay tax you should be paying. The first is legal, and the second illegal, for a start.

Yes, splitting their income would work but it's tax evasion. They earn different amounts because they do different jobs.

House provided by employer/housing allowance - no, this would be taxable as a benefit in kind (otherwise we'd all be doing it! Unless they work in a few very specific fields where there is an exception. Ministers of Religion for example).

If your Dad is a higher rate tax payer he should look into a pension, this is about the only real tax advantage available on PAYE at that level of income.

He should also be making all their charitable donations as he will get a tax refund (not the full amount!) relating to donations made to charities that use gift aid.

Randvegeta

Cook_County wrote: »

Having no income at all would be the most efective way of paying no income tax.

What plans are in place, however, for inheritance tax?

Well it would be inconceivable that no income would be earned while in the UK. My parents will certainly be having an income. It is not that they wish to NOT pay tax, simply to minimize it.

What do you mean what plans are in place? ATM, there is only a plan to split the income so that both tax free allowances can be used while also keeping all taxable income in the basic rate. No plans I know of for inheritance tax...

Randvegeta

heretolearn wrote: »

Why don't your parents want to pay the tax they should? I'm all for people paying minimum tax but there's a difference between avoiding tax you don't have to pay (but maybe don't know how to reduce it) and evading tax to not pay tax you should be paying. The first is legal, and the second illegal, for a start.

I am not talking about evading taxes. I am asking for advice as to avoid taxes legally given my parent's highly flexible circumstances.

heretolearn wrote: »

Yes, splitting their income would work but it's tax evasion. They earn different amounts because they do different jobs.

How is that tax evasion? So what they do two different jobs? Why is it the company cannot adjust the pay each get?

heretolearn wrote: »

House provided by employer/housing allowance - no, this would be taxable as a benefit in kind (otherwise we'd all be doing it! Unless they work in a few very specific fields where there is an exception. Ministers of Religion for example).

Understood. I suspected as much but just checking.

heretolearn wrote: »

If your Dad is a higher rate tax payer he should look into a pension, this is about the only real tax advantage available on PAYE at that level of income.

That is a good point actually. I'm wondering if it would be worth while though. My parents may not stay in the UK for very long and they will reach retirement age in about 15 years. Can a reasonable pension be built up in such a short period of time. They do not have any pension at all ATM.

heretolearn wrote: »

He should also be making all their charitable donations as he will get a tax refund (not the full amount!) relating to donations made to charities that use gift aid.

Some money will be paid to charity every month. Approx 10% of their income, likely to the church they choose to attend. Good point on this too as they get some deductions. Thanks for bringing this up.

John_Pierpoint

I was thinking of this advice, now that CGT is based on a spurious increase in a depreciating fiat currency:

4. Capital Gains Tax Considerations

If you return to the UK within five years of leaving, you are liable to pay UK tax on any capital gains realised during your absence. Conversely, if you have been non-UK resident for at least five years, any gains on assets disposed of during that time will not be subject to UK tax. This presents an opportunity where you have been outside the UK for five complete tax years. Investments standing at a gain could be sold before you return to the UK. Planning for land and property standing at a gain is more difficult where you wish to retain those assets. However, with careful planning it is possible to retain such assets within family structures but trigger a gain ahead of your return to the UK. On any future sale of those assets, only the gains since your return to the UK would be taxed.

Randvegeta

Thanks for the link Malcnascar. Some interesting stuff in there. Will give it a thorough read later.

John_Pierpoint, thanks for your input. Parents have been away for more than 5 years but do not plan on disposing of assets accumulated.

The move to the UK is likely NOT permanent so such considerations may not be necessary. I highly doubt my parents will want to retire in the UK. So I am interested how the pension system would work in their case if indeed they do not stay in the UK when they reach retirement age, or if they move back to HK before reaching retirement. I know little about pensions given I think they are generally a waist of time and more of a burden than a saving. FYI, since I don't live in the UK, the 'tax incentives' may not apply to me.

So I am looking for clever ways of reducing the tax bill which would mostly come from income tax. Other than splitting income, I'm not sure what else would be an effective means of reducing the tax short of living in another country. In Lithuania, where I will be living soon, there is just a 5% income tax, which is nice . But they don't want to do that.

heretolearn_2

"ATM, there is only a plan to split the income so that both tax free allowances can be used while also keeping all taxable income in the basic rate."

Say Mr X and Mrs X work for the same company and at the moment Mr X's job is paid £60,000 and Mrs X is paid £10,000. On moving to the UK their incomes are 'arranged' so that they now both earn £35,000. Their jobs have not changed. Mrs X's work is suddenly worth £25k a year more, and Mr X's work is suddenly worth £25k less? This is not genuinely the case. There is no reason for the rearrangement of their salaries other than specifically to evade Mr X paying tax at the higher rate. In the UK there is the principle is independent taxation of individuals - couples do not get to combine their income and fiddle about with it for tax purposes, there is no joint taxation or advantages for being in a couple. (with few exceptions due to age). Couples can transfer assets between each other to minimise tax, but not income.

Well, to repeat my point, this would be illegal tax evasion, not tax avoidance. Like it or not, that's what it is. Whether you think this should be the law or not, doesn't matter. It is what it is. Would they get away with it? Probably. But it is taking a risk, which I am pointing out to you so they can decide what to do.

Randvegeta

Their jobs have not changed. Mrs X's work is suddenly worth £25k a year more, and Mr X's work is suddenly worth £25k less? This is not genuinely the case. There is no reason for the rearrangement of their salaries other than specifically to evade Mr X paying tax at the higher rate.

Actually the jobs have been changed significantly. For 1, Mr X would no longer be working in an office, and instead would work at home in a different country. It is entirely plausable that different countries have different wages for the same job.

The income inequality in the UK is far less than in HK. So it is in fact likely that Mr X would get paid less while Mrs X gets paid more. Perhaps not 50:50 but perhaps 60:40? Of course the objective is to arrange the pay to minimize tax but it is not like it is being done without justification.

You have to consider than in a different country, the tax laws differ and so wages people are willing to accept differ. Maybe Mrs. X agrees to work for less pay in HK because there are TAX advantages to the family. In the UK, doing such a job may not be worth while given little/no tax advantage. So in order to pay Mrs X more, the company may need to cut costs, perhaps from Mr X's salary. So I would disagree with your logic...

Well, to repeat my point, this would be illegal tax evasion, not tax avoidance. Like it or not, that's what it is. Whether you think this should be the law or not, doesn't matter. It is what it is. Would they get away with it? Probably. But it is taking a risk, which I am pointing out to you so they can decide what to do.

I am unfamiliar with this law. Not that I don't believe you but if you can refer me to something specific, it may be useful for me to see what can and cannot be reasonably be done.

cinderfella

I would suggest that the postings by the OP although interesting are hypothetical only.
On 09/09/2012 he stated that he was living in Lithuania. He is now stating that he is going to live in Lithuania.
Okay, it makes the board interesting.
Just makes one wonder what other fictions there are on this forum ?:cool:

le_loup

Fantasist.