Chapter 20

UNITED KINGDOM

I INTRODUCTION

On 29 March 2017, the Prime Minister, Theresa May, gave the European Council formal notification of the UK's intention to leave the EU. Article 50 of the Treaty on European Union was triggered and the two-year window for negotiating the UK's EU exit ('Brexit') began. More than a year after the UK's referendum on EU membership, the relationship that will exist between the United Kingdom and the remaining EU Member States continues to be unclear. As noted in the previous edition of this chapter, as far as executive remuneration is concerned, it is likely that EU anti-discrimination laws and rules to curb excesses in executive pay will be retained by the UK. Prospectus requirements and social security rules may well be affected by Brexit and we will continue to monitor these closely. At the end of August 2017, the government published proposals to reform corporate governance, which include a requirement for companies to publish the ratio of CEO pay to average pay. In the meantime, shareholders have continued to use their existing powers to curb excessive remuneration, with shareholder opposition prompting several high-profile companies to drop or revise proposed executive incentive arrangements in the first half of 2017.

II TAXATION

i Income tax for employees

The rules determining an individual's residence for UK tax purposes are complex and depend on the person's particular circumstances. In the United Kingdom, an individual's liability to tax is determined by whether he or she is resident and domiciled in the country. The underlying principle is that those with the strongest links to the United Kingdom should pay more tax than those with weaker connections.

Historically, the concepts of residence and domicile were not defined by statute, however, this changed significantly from 6 April 2013 when a statutory residence test was introduced and the pre-existing concept of ordinary residence was effectively abolished.1

Broadly speaking, individuals who are UK-resident and domiciled in the United Kingdom are subject to UK income tax on their worldwide income, whereas those who are not pay tax only on income with a UK source. Proposed changes to the domicile rules will mean that individuals who are UK-resident for more than 15 of the past 20 tax years will be deemed to be UK-domiciled for most tax purposes. Further, individuals with a UK domicile of origin and a UK place of birth will be deemed UK-domiciled for UK capital gains and income tax purposes whenever they are resident in the United Kingdom. Draft legislation to enact these changes has been published and it is expected that this will form part of the second Finance Act of 2017 and, if enacted, will take effect from 6 April 2017.

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* Mahesh Varia is a partner at Travers Smith LLP.

Footnote

1 Finance Act 2013, Sections 218 and 219 and Schedules 45 and 46.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.