Britons who move abroad to live need to be able to show that they have made a ?distinct break? with the UK if they wish to ensure that they cannot be treated as UK tax resident after leaving UK sh
Britons who move abroad to live need to be able to show that they have made a ?distinct break? with the UK if they wish to ensure that they cannot be treated as UK tax resident after leaving UK shores. If you do not clearly sever ties with the UK, HM Revenue & Customs (HMRC) could argue that you are liable for tax in the UK, even though you live elsewhere. The exception is if you leave the UK for full time employment abroad.
It has been suggested that employees leaving Britain will have to cut their ties with the UK like selling their home, and not set foot in the UK for at least a year to become non-UK resident, but this is not the case.
The recent judicial decision involving Robert Gaines-Cooper and UK residency reaffirmed that in order to become non-UK resident it is not necessary for an employee to do anything other than be employed overseas full time for at least a full UK tax year. If you are a retiree, for example, whether having taken early retirement or at retirement age, you would have to ?sell up? in the UK and transfer all your belongings, as well as your spouse and dependent children, abroad, and cut all lifestyle links with the UK to show that you had left the UK for good.
As Lord Justice Moses said in the Gaines-Cooper case in the Court of Appeal: ?It is not enough that the taxpayer has left the UK, he must have left to work full time. Absence is not sufficient, it must be absence while engaged on a full-time employment for at least a whole tax year. No more however is required. The absence need be neither permanent nor indefinite. Accordingly, … there is no requirement, for a taxpayer to demonstrate that he has severed family and social ties within the UK.?
The employment must be on a full time contract as an employee and not simply your own company set up to give you an employment. When Gaines-Cooper moved to the Seychelles in 1975 he did not take up full time employment there and had to rely on HM Revenue & Customs? (HMRC) guidance in its booklet IR20 (now HMRC6) on residency and non-residency. Under the heading ?Leaving the UK permanently or indefinitely?, the booklet stated:
?If you go abroad permanently, you will be treated as remaining resident and ordinarily resident if your visits to the UK average 91 days or more a year.?
Gaines-Cooper argued this meant that all he had to do was leave the UK and thereafter spend less than 91 days a year in the UK. The Court of Appeal referred to the words in the heading ?Leaving the UK permanently or indefinitely?. It was decided that this denotes a much greater break than simply ?getting on the Eurostar to Brussels?.
?The adverbs ?permanently or indefinitely? make, as a matter of construction, all the difference. The extent to which a taxpayer retains social and family ties within the United Kingdom must have a significant and often dispositive impact on the question whether a taxpayer has left permanently or indefinitely.?
IR20 has since been replaced by HMRC 6 and HMRC is adamant that the information given is for guidance only. However, it is clear that if you wish not to be treated as a UK tax resident after leaving the country you must demonstrate that you are leaving the UK ?permanently or indefinitely?. Gaines-Cooper had retained nearly all of his ties to the UK as well as breaking the UK 91-day residency rule and was deemed to have remained UK resident for tax purposes even though he was a resident of the Seychelles.
Ties to sever to establish UK non-residency
?Set up a new main home outside the UK. It is not strictly necessary to give up having a home in the UK altogether providing it is ?consistent with? you moving abroad to live ?permanently or indefinitely?. So if you do retain a UK home it would be prudent for your new home abroad to be larger than the UK one. Retention of a UK home that is available for your use is a factor that connects you to the UK, so to strengthen a claim to non-UK residence, we would recommend that you sell your UK home, or rent it out to a third party.
?Move personal effects, family photos, furniture, cars and family pets to your new home abroad.
?Your spouse and any minor children should move abroad with you. In Gaines-Cooper?s case having family in the UK worked against him because although a Seychelloise, his wife lived all year round in the UK and his young son went to a private preparatory school in Henley. There is however, no need for you to sever all family and social ties. It is not necessary for adult children or aged parents to uproot themselves and move abroad with you, as has been suggested in the UK press.
?Resign membership of sporting and social clubs and cut all UK business connections.
?Notify your UK doctor and dentist that you have left the UK and register with different ones in your new country residence.
?Dispose of your UK investments and plan to re-invest abroad.
?Close UK bank accounts and credit cards and open bank accounts in the country where you have moved.
Recent tax cases on UK residence emphasise that to show that you are a non-UK resident it is important to make a ?distinct break? with the UK and establish your new country as the place which is the centre of your life, and where your family, social and economic links are the greatest.
Once you have made a ?clear break?, it is still possible to visit relatives and friends in the UK, providing you keep well within the 91 day limit i.e. spend less than 91 days or nights in the UK in any UK tax year taken on average over four years.
If you have not made a ?clear break? with the UK, you are likely to be treated as remaining UK resident, regardless of the number of days you spend in the UK each year.
A tax and wealth management firm like Blevins Franks can advise you on tax and residency issues both in the UK and many other countries, including advice on how tax planning can reduce your tax liabilities, even if eventually you return to the UK to live.
By David Franks, Chief Executive, Blevins Franks
15th June 2010