Accordingly, if the individual is UK resident (as well as a US citizen) but does not need immediate personal access to the profits of the business, it may be advantageous to operate the business through a UK company so that its profits are chargeable at the lower corporation tax rate, with the potential to use check the box elections to obtain a credit in the US.
Any UK income tax liability can be deferred until the profits are distributed out of the company.
Personal taxation
A US citizen coming to the UK will be taxable in the US on their worldwide income. UK income tax will also apply depending on his/her residence status in the UK.
If UK resident, he/she will be taxable in the UK on their worldwide income, albeit this would be allowed as a credit in the US. If the individual remains non-resident, he/she will only be taxable in the UK on income arising from a UK source, unless this is "disregarded income".
Dividends from UK companies received by non-resident individuals are "disregarded income" and therefore can be received free of tax.
One important question is therefore whether the individual business owner will become UK resident. This will, broadly, depend on how many days he/she plans to spend in the UK during the tax year (April 6 to April 5).
The UK's statutory test for residence means it is relatively clear whether you are UK tax resident or not. There are several 'automatic' residence tests, which if inconclusive give way to a test based on the number of days you have spent in the UK and your ties to the UK.
Broadly, you are automatically UK resident if you spend 183 or more days in the UK, and automatically non-resident if you spend less than 46 (and you have not been UK resident in the previous three years).
Meeting the above tests would bring you within the scope of UK income tax and capital gains tax on your worldwide assets.
However, a US individual coming to the UK otherwise than permanently or indefinitely would likely be able to claim the "remittance basis" of taxation. This would, broadly, protect foreign income and gains from UK taxation, provided they are not brought to or used in the UK while that person is resident.
The remittance basis is not available to long-term residents – that is currently individuals who have been resident for more than 15 out of the previous 20 years.
Overseas workday relief can also be claimed provided the individual was non-UK resident in the three years prior to arrival. This broadly means that for the first three years of residence, the individual is not taxed in the UK in relation to duties performed abroad.
