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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3817
Experience:  FCCA FCMA CGMA ACIS
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Hello, my circumstances are as follows: - I am British, residing

Customer Question

Hello, my circumstances are as follows:
- I am British, residing in China
- I own a business in China from which I draw 3-400k GBP per year

Aim: to build up buy-to-let property portfolio (I currently have two properties in the uk).

Problem: as a non uk resident I am very restricted on the mortgage options that would otherwise be available to me.

Proposed solution: become a uk tax resident and pay myself, say 50k a year.

Questions: 1. would the dividends from my China business be subject to any further uk taxation?
2. What us your opinion on this proposal?
3. What problems/liability might I open myself up to?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

As a British Citizen and resident all income world wide would be subject to UK taxation. Under the Double Taxation Treaty entered into between the UK and China in 2013 any tax deducted by the Chinese authorities would be allowed as a tax credit against any UK tax liability.

You would receive 10K personal allowance, but you would loose all that as your income exceeds the maximum permitted to receive the allowance. Any improvements made to your properties eg new kitchens, bathrooms etc would not be allowable against Income Tax (IT), but would be added to the purchase price to reduce the gain under Capital Gains Tax legislation in the event of a disposal at some indeterminate, future date. Any maintenance expenditure is allowable against IT.

Your income would be taxed at 20% for the first 31.865K of income, 40% on the balance up to 150K and 45% thereafter. You are in for a pretty hefty tax bill.

Holding your UK properties in a company would not be of much help either as a close company would have excess retained profits taxed on you as deemed distributions. Of course, that does depend upon the income level in the company and the wages paid to you. This area, as you can see, is somewhat complex.

I hope I have thrown some light on your position as a UK resident.
Customer: replied 3 years ago.
Surely I can simply pay myself a nominal salary of 20k and then draw the rest as a dividend after paying corporation tax?
Expert:  bigduckontax replied 3 years ago.
Sorry, I have mislead you; forget what I said about close companies. Yes, you can do as you suggest, but remember that with your relatively large Chinese income added in those dividends taxed at 10% are going to be grossed up for higher rates of UK taxation.

Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes!
Customer: replied 3 years ago.
And uk corp tax would be 26%?
Expert:  bigduckontax replied 3 years ago.
The small profit rate of 20% is available, main rate is 21%, but after 1 April 2015 the main rate is unified at 20%.

You are quoting the 2011 main rate of Corporation Tax. It has been falling by the odd percent for several years since and for 2014 is down to 21%.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.

Your income is relatively high. You might be well advised to engage a trusted, local UK, professional accountant to handle your tax affairs and negotiate with HMRC if necessary.

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