Understanding the Tax crackdown for those wishing to leave the UK

Following a court ruling last week, it now seems that those wanting to escape the HM Revenue and Custom’s tax net will need to cut all ties with Britain if they want to avoid paying tax.  It would now seem that literally thousands of people who have moved or retired abroad will come under fresh scrutiny.  And simple ties to the UK such as keeping a British mobile phone, or a club membership could land those individuals in trouble with the tax man.

What are the residence rules?

• If you are resident in the UK and are domiciled here then you can expect to pay tax on your worldwide income.
•  Generally non-residents are only liable for income tax and capital gains tax on money they have earned in the UK and not on their global income.
• The latest HMRC6 Guidance states that:

Just because you leave the UK to live or work abroad does not necessarily prove that you are no longer resident here if, for example, you keep connections in the UK such as property, economic interests and social activities or if you have children in education here.

 How can I be certain that I have cut all my ties to the UK?

• If you are British by birth, you need to sell up everything, not returning to the UK AT ALL for the first year.
• You must live abroad for three years AT LEAST in order to avoid UK income tax and for AT LEAST five years to avoid UK Capital Gains Tax.
• Then keep all UK visits to less than 91 days per year.
• You will need to complete a P85 form when you leave, informing the Inland Revenue that you wish to claim tax relief or repayment of UK income tax.
• If you still receive any income from the UK, you will need to still complete a UK tax return to declare your non UK resident status.
• You will have to resign from any company Directorships.
• You must take your spouse and children with you.
• You must not continue to send your children to a British school.
• You must transfer your bank accounts to banks outside the UK.
• You must give up any UK mobile contracts.
• You should resign from any clubs.
• You should ensure that the electoral register is amended, so that you are entitled to vote from abroad.

How will the new rulings affect me if I have retired abroad?

• If you keep a property in the UK and visit regularly you will now fall under the new scrutiny.  Therefore it is advisable to sell up and relinquish your right to stay in the UK.
• Keep all visits well under the 91 day threshold.
• The fresh scrutiny does NOT however consider it a tie to the UK where Grandparents who live abroad, pay their grandchildren’s school fees.

How does it affect me if I have moved abroad to work?

• Subject to certain conditions, the HMRC usually treats those who move away on a full-time contract of employment as a non UK resident for the entire time that they are away working.
• However your contract MUST span the entire tax year.
• Visits to the UK must not exceed 183 days in any one tax year, or an average of 91 days over a four year period.

How do the tax rules affect overseas earners working in the UK?

• You are treated as a UK resident the day that you arrive in the UK for tax purposes.
• If you intend to be classed as having ‘Not Ordinary Resident Status’, which means you cannot remain in the UK for more than 3 years, it is possible to only be taxed on your UK earnings and your worldwide earnings cannot be considered.
• However if HMRC rules that the UK is the ‘Not Ordinary Resident Status’ persons centre of interests, they may still liable for taxation on worldwide interests.  It is therefore advisable to seek appropriate advice.

We recommend that in all instances that you seek qualified professional advice.