Connection between ILR and tax payments

[shishir2012]

I'm on a Tier-II and I have just started a job in the UK on a 40k a year job. I plan to apply for ILR in five years time.

It turns out that there's a double taxation treaty between UK and India which would allow me to claim zero tax liability in the UK for 5 years while I am on the Tier-2 (and pay the tax in India instead). I would like to know from members whether this is a wise course of action to take in the context of my future plans (ILR application).

Is it necessary to be a UK tax payer to successfully obtain ILR?

Many thanks!

[ban.s]

if you live in the UK and get paid here, then you need to pay tax to UK authorities. Double tax avoidance treaty doesn't mean you can choose and pick your tax country.
secondly, ILR rules are undergoing major changes so no one knows the future requirements - this is applicable especially to the people that entered in the country on/after april 2011 and complete five years in 2016.

[shishir2012]

if you live in the UK and get paid here, then you need to pay tax to UK authorities. Double tax avoidance treaty doesn't mean you can choose and pick your tax country.

Hmmm...there seems to be a clear provision for someone working at a University, to have no income tax deducted on the salary on the UK side as per Article 22 of the Double Taxation Avoidance agreement: www.hmrc.gov.uk/international/india-dtc.pdf
After two years you pay taxes like everyone else.

secondly, ILR rules are undergoing major changes so no one knows the future requirements - this is applicable especially to the people that entered in the country on/after april 2011 and complete five years in 2016.

I wonder though if the 4 years and 11 months waiting period starts from the day you pay taxes or the day your passport was stamped in the UK. From the HMRC website it seems that it's the passport document they ask for.

I wonder if anyone here has direct experience of a similar kind where you've claimed exemption.

[ban.s]

which would allow me to claim zero tax liability in the UK for 5 years while I am on the Tier-2 (and pay the tax in India instead).

clearly you can't claim zero tax liability for 5 years while you are here.

The DTA provision states 'An individual who visits a Contracting State for a period not exceeding two years' - so if you intend to stay here longer and/or come on a long term work permit for the purpose of full time employment, then in my opinion you don't satisfy the condition.

[shishir2012]

which would allow me to claim zero tax liability in the UK for 5 years while I am on the Tier-2 (and pay the tax in India instead).

clearly you can't claim zero tax liability for 5 years while you are here.

The DTA provision states 'An individual who visits a Contracting State for a period not exceeding two years' - so if you intend to stay here longer and/or come on a long term work permit for the purpose of full time employment, then in my opinion you don't satisfy the condition.

That's right, two years not five. I'm scratching my head about whether I would be liable to pay taxes in India for the first two years. If not, then it would make my life much simpler since whatever is required happens automatically (tax deducted at source). I suppose I should just apply to HMRC for a tax code and act according to their wishes. If it's a reject, then it's not my decision not to pay tax in India. If it's an accept, then I go ahead and pay taxes in India...what a pain especially since the amounts are almost identical.

Appreciate your thoughts.

[ban.s]

You don't need to pay any tax in India, if you are resident in the UK for tax purposes and pay your taxes here.
The DTA section 22 assumes that the eligible teachers would be returning back to India after their visit (max upto 2 years) and then would pay tax there.
If you pay tax here then you are not liable to tax there - that would defeat the very purpose of the double tax avoidance treaty.

[shishir2012]

You don't need to pay any tax in India, if you are resident in the UK for tax purposes and pay your taxes here.
The DTA section 22 assumes that the eligible teachers would be returning back to India after their visit (max upto 2 years) and then would pay tax there.
If you pay tax here then you are not liable to tax there - that would defeat the very purpose of the double tax avoidance treaty.

Indeed I can claim relief in India when I file my return there. The question was whether I would be obliged to invoke the DTA and pay tax on UK income in India for the first two years. (This is important because I do want to invest my money earned in Indian banks paying 9.5% interest and don't want any hassles from Indian tax notices about income-beyond-known-sources).

It turns out that your intuition was correct and HMRC disallows the deduction if the planned period is longer than two years. Even if you do manage invoke the tax exemption, you'll have to pay back taxes if you stay on.
http://www.hmrc.gov.uk/manuals/dtmanual/DT1936.htm (Para 4)

Cheers!