Despite the best efforts of the UK government currently to make people want to shun the UK, there's a good chance we'll soon be UK residents, while still domiciled in CH. This leads us into the murky waters of double-taxation, and while we are in contact with a tax advisor, it's hard to get an illustrative example. Maybe someone here has been in the same situation and can shed some light.
Let's assume:
We have Swiss domicile and so CH is our "country of residence" for tax-purposes We are UK-residents and thus subject to UK taxes We have a total taxable income of CHF 120'000 (let's forget about deductions) Of the income, CHF 50'000 is generated while in the UK, the rest while in CH
My understanding is that with CH as "country of residence", CH will use the global income to determine the tax rate but then only tax the CH-income of CHF 70'000 (exemption with progression). So far it's pretty straight-forward. But how does UK then tax the UK-sourced CHF 50'000 with respect to the UK tax rates/bands? Do we get the full personal allowance, and the rest is taxed at the basic rate? Or does HMRC use the global CHF 120'000 to define the rates and then applies to CHF 50'000 pro-rata?
What kind of income?
Do you qualify for UK split year treatment? https://www.gov.uk/hmrc-internal-man...asis/rdrm12000 - read conditions associated with each case carefully and if they apply to you. If yes, HMRC would have no business taxing the income from non-UK part of the UK tax year.
Ehrm, that'd be for swiss tax purposes I guess. But you can also totally be a UK tax resident for UK tax purposes at the same time and owe money to both sovereigns on the same income. Figuring out who gets first dibs to tax you is raison d'être of income tax treaties.
For the purposes of UK/CH income tax treaty (third kind of tax residency!), you will be a resident of exactly one of them - read the list of tie breaker rules in the treaty (home availability, center of vital interests etc). Which one are you? Note the treaty provisions are not exactly symmetrical wrt this residency, different kinds of income may be taxed very differently depending of which side you assume.
Thanks for your reply!
I'm quite sure split year won't apply to our situation.
and that will be Switzerland, without a doubt. (that's what I wanted to say by stating "We have Swiss domicile and so CH is our 'country of residence' for tax-purposes", probably using the wrong terms).
Great, so what kind of income you got? Read the corresponding treaty's article about it, and maybe also Art 21-22 for general cases. Some clauses use wording like "a Contracting State" and "the other Contracting State" - you need to consider both versions, substituting UK/CH and then CH/UK. The treaty is in general more binding than national tax legislation - the latter is only relevant for how a "Contracting State may tax" you when they are allowed so per treaty.
Also note UK and CH tax years run for different periods, so it doesn't make sense to talk about "total taxable income of CHF 120'000" in this context - each country will have its own different view of your taxable income. "Do we get the full personal allowance" etc depends on UK's view of your relevant UK tax year(s).
It's complicated. Even if you think you've found the solution there are often exceptions.
For starters https://taxsummaries.pwc.com/united-...d-tax-treaties
Also loads of stuff on the gov.uk pages not to mention the double tax treaty itself.
Generally you can deduct foreign taxes paid from UK tax liability (i.e. UK taxes everything) but there are also other ways including as already mentioned the possibility to be considered tax resident in only one country even if according to the rules you would be resident in both.
Domicile and residence are two separate things.... one can be:
- Domiciled, resident and ordinarily resident
- Domiciled, ordinarily resident, but not resident
- Neither domiciled nor ordinarily resident, but resident
You need to determine you situation for both jurisdictions and then you can start applying the tax law.
I imagine your tax consultant will be happy to provide you with examples, if you are will to pay for the time to do them.
The "deduct foreign taxes paid from UK tax" approach comes into play if you're considered "resident of UK". Then article 22 (1) should apply, at least that's how I read it.
It's not *that* complicated, but there's certainly no one-size-fits-all answer that OP seems to be seeking. Depends on circumstances.
For a start what kind of income we're even talking about
Article 22 (2) should apply, and
is what I'm specifically interested in from the UK side. Take the example income from the original post, assume CHF 10'000 per month, 5 months spent in the UK (i.e. UK-sourced income). For the sake of simplicity, also assume that those "5 out of 12" apply for both the CH and the UK tax year.
Switzerland will determine a tax rate based on the CHF 120'000 income, then tax the CH income of 70'000 with that rate. UK will tax the CHF 50'000 ... but how?
Please see example income stated in the original post
You only posted some totals figure. What kind of income was it, how exactly did you generate it? Was that UK/CH salary? UK/CH/US divs? Specifics matter! One size fits all answer that you're looking for doesn't exist!
If you're not willing to post the specifics in public, your other option is basically to discuss them in private with your tax advisor
We'd be resident in UK and CH (I think otherwise double-tax on income doesn't apply anyway), domicile in CH. The double-tax treaty has a term for the country which gets "first dibs" on taxation, I haven't yet figured out what that is legally called (might also be "resident", which doesn't help). "First dibs" country would be CH.
We're still haggling with our UK tax consultant, and I had the idea that someone here might be able to give us an idea how UK applies taxes in above case much quicker than our consultant eventually will.
I apologize. I wrote "income" and thought "salary". CHF 10'000 salary monthly. I'm absolutely aware of all the deductions Swiss taxes allow, and the salary will have social security strings attached to it.
But I'm not looking for an exact calculation, I'd like to understand how the HMRC applies UK tax bands to a pro-rata income. For the example of CHF 50'000 (£40'000) salary UK-sourced, out of a global income of CHF 120'000 (£ 96'000, i.e. 42%), do they
£12'500 personal allowance
£27'500 at 20%
and done (this seems unlikely), or do they re-calculate the bands using the 42% and then apply tax. Or maybe something completely different?
If we're talking about salaries, then you have 'Dependent personal services' case in treaty speak.
Assuming simplest possible case - you worked some part of UK tax year in UK, then moved and now working in CH, the treaty says that your CH income is not taxable income for UK (so long as you never worked from UK for your CH employer and not subject to any of extra provisions etc):
Art. 22 of the treaty does contain a clause allowing both countries to consider any non-taxable income in determining your tax band:
But as far as I know only Switzerland actually makes use of this clause.
Re personal allowance, you should normally get it for any full/partial year of UK residency - https://www.gov.uk/hmrc-internal-man...asis/rdrm10315
RDRM10315 is exactly what I was looking for, thank you so much @kerneltrick. Interestingly, from that document I also learn that when it comes to UK + CH, I would even be entitled to personal allowance if taxed on remittance basis; something our (possible) UK tax advisor said we wouldn't get.
UK determines the tax amount based on the 120k then you can claim relief for the Swiss tax i.e. deduct the Swiss tax paid from the UK tax due? There are other methods but might not be as attractive. You can claim UK personal allowance if you're UK tax resident (or if your eligible to choose that basis if you're not)
I think the only way you can get only the 50k taxed in the UK would be if you weren't UK tax resident and it might be possible to get a judgement to allow this but I doubt it. As mentioned there's the difference remittance etc bases.