1) Beware of the DIY Approach. When you first think about moving abroad, begin by listing in order of preference the countries in which you and your partner would be happy to live. Ignor
1) Beware of the DIY Approach. When you first think about moving abroad, begin by listing in order of preference the countries in which you and your partner would be happy to live. Ignore the tax systems for the moment ? assume that they are all the same. Then discuss your choices with an experienced tax adviser. You may be surprised to fund that the taxes payable in your favourite countries are not nearly as high as you imagined. France is a great example of this: if you know your way around the French tax breaks, you can reduce your tax liabilities to near tax-haven rates. The do-it-yourselfers never find that out.
2) Don?t think that a tax residence of convenience works. It is a fallacy to believe that if you become a tax resident in a tax haven (e.g. Gibraltar, Channel Islands, Malta) and spend a short time there each year, it will act as a shield, allowing you to spend as much time in any other country as you want. Relying on a defence of ?but I am a resident of?? when you are spending a lot more time in Spain, for example, is NOT a defence against being classed as a Spanish tax resident. The double tax treaty ? if one exists ? will offer little protection.
3) Don?t think you can hide? If your tax planning relies on your new country?s tax authorities not realising that you are there, think again. You leave a documentary trail of evidence revealing your whereabouts ? utility bills showing usage, mobile phone bills, credit card and bank statements, traffic tickets, witness states from gardeners, cleaners etc. Better to have a solid tax plan where all facts are known and you are safe ? no sleepless nights.
4) Beware the 90 day rule. The so-called 90 day ?rule? for avoiding UK tax residence is misunderstood. Simply keeping under 90 days does not mean that you are no longer a UK tax resident. The 90 day rule is not a law and is ignored by the courts if they end up having to decide whether you have remained a UK tax resident. If you spend less than 90 days in the UK, but you stay in accommodation which is available for your use (and you don?t necessarily have to own it), then you are at severe risk of being classed a UK tax resident unless you left the UK for full-time employment overseas.
5) Do not over-rely on a double tax treaty (DTT). The DTT is an agreement between the UK and another jurisdiction stating that you cannot be a tax resident of both countries: you can only be resident in one of them. If you are British, and you end up relying on the DTT, you are 95% likely to be deemed a UK tax resident. The solution is to take all the necessary steps to be classed as a non-UK tax resident from the very outset, and so never relying on the DTT.
6) Be very afraid of not being tax resident anywhere. Those people who argue that they are not tax resident anywhere, usually misunderstand the rules (albeit unwittingly). It is true that you do not have to be tax resident somewhere, but unless you know intimately the tax residence rules of each country in which you spend time, you can be caught out. Many countries deem you to be a tax resident even where you spend under six months a year there. Most tax inspectors simply cannot accept that you are not a tax resident somewhere in the world.
7) Do not let the system lose you. Often individuals move to a new country, and do not bother to report themselves, believing that all is well since no tax authority seems to bother with them. As the years roll by, this complacency becomes an ever-increasing problem. It is illegal tax evasion not to complete tax returns, and is a criminal offence in most places. Even if you are still paying UK tax, that does not mean that you are exempt from paying tax in your new country. Usually, you have to pay tax in your new country and claim relief under the DTT.
8) Reconsider your UK tax favoured investments. Just because an investment is tax favoured in the UK, does not mean that it is also tax favoured in your new country. In most cases, it will not be. You need to re-examine all of your investments, and replace your UK tax efficient ones with new ones better suited to your new country.
9) Receiving your 25% tax free lump sum from your pension. This is very much a UK tax rule, and does not necessarily apply in other jurisdictions. If you are tax resident outside of the UK, the chances are that the 25% lump sum will be taxable. If the tax free lump sum is important to you, you should consider taking it before you move to your new country. You should also consider whether or not you should move into QROPS (Qualifying Recognised Overseas Pension Schemes). This means that you can put yourself outside the UK tax system, avoid having to buy an annuity, and avoid having to keep exchanging your UK Sterling pension.
10) Do your tax planning early. Do not just move abroad, and then work it out; that?s a recipe for disaster. The sooner you plan, the better.
By David Franks, Chief Executive, Blevins Franks
10th November 2010