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Moving to the UK: an entrepreneur’s quick guide
Article published in STEP Journal on 4 December 2021
Entrepreneurs see the UK’s business friendly environment as one of its most important assets, according to recent research1 from Lombard Odier. Retaining tax incentives for start-ups is also seen as a top priority. While Brexit may have taken the shine off a UK relocation for some international entrepreneurs, many still choose to move there: for London’s cosmopolitan appeal, the UK’s ‘bridging’ status between Europe and the US, and its favourable taxation rules. Below, we discuss how entrepreneurs should navigate a successful relocation.
Entering the UK
Post-Brexit, freedom of movement into the UK is no longer readily available to EU citizens (except those who have secured settled or pre-settled status), or those who do not have British citizenship. Instead, there are now two main routes for entrepreneurs to consider: the Innovator/Start Up visa and the Investor visa (Tier 1). The former aims to help individuals running an innovative business to settle in the UK. The latter has been designed to authorise anyone to live in the UK provided they invest a minimum of £2mn in UK eligible securities. The choice of visa will depend on the stage of development of the entrepreneur’s business and the funds available.
Benefiting from the remittance basis
One main reason why the UK still appeals to successful entrepreneurs is the “remittance basis regime,” which allows a UK resident who is neither domiciled nor deemed domiciled in the UK to limit his or her tax liability to UK source income or gains. Foreign source income or gains are subject to tax in the UK only if repatriated (“remitted”) into the UK. This regime can be tricky for unwary entrepreneurs to navigate. Whilst income and gains derived from the entrepreneur’s private wealth will fall within this regime, earnings derived from duties carried out from the UK will have a UK source and lie outside it. The difficulty is how to distinguish duties carried out within the UK from those outside it, in particular if these tasks can be done anywhere, e.g. coding a program or reviewing business ventures.
Another difficulty arises when considering the funding of personal expenses in the UK. If the income generated by the UK activity proves to be insufficient, the entrepreneur will have to use foreign funds to cover UK expenses. This might trigger an additional tax liability. The key point here is to be well advised prior to settling in the UK, to ensure that adequate planning is in place, and the entrepreneur is in the best position to benefit from the UK tax environment.
Running the business
The entrepreneur will certainly consider whether his or her activity should be structured as a company. If an entrepreneur is resident in the UK, setting up a UK-incorporated company is a straightforward way to benefit from three key points. The first is the difference between the corporate and personal income tax rates (19%2 versus 45% for the top income tax levy3). The second is tax deferral until benefits from the company are extracted: either through dividends or a salary. The third is the favourable tax regime applicable to dividends paid to the company.
The alternative is running the business via a company incorporated abroad. This situation may arise if the entrepreneur moved to the UK having already launched a successful venture abroad. If the entrepreneur benefits from the remittance basis, the dividend paid by that company will have a foreign source and should be subject to tax only if remitted into the UK. In this case, the entrepreneur must ensure that management and control of the company is carried out abroad.
Of course, there are many other areas to consider for entrepreneurs contemplating a UK move. Getting appropriate advice pre-arrival is key to ensuring that such individuals can focus on the success of their business rather than wrestling retroactively with complex tax and legal considerations.
1 Entrepreneurs’ Views 2021: Business Lessons, Wealth and the UK Outlook, Lombard Odier
2 Rising to 25% from April 2023 for firms with annual profits over £250,000, or close investment holding companies.
3 https://www.gov.uk/browse/tax
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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