More wealthy people are expected to leave the UK to reside abroad and escape the new 50% tax rate for higher earners. Now the UK tax authority has warned that it will dig deeper to determine non-
More wealthy people are expected to leave the UK to reside abroad and escape the new 50% tax rate for higher earners. Now the UK tax authority has warned that it will dig deeper to determine non-resident status and look closely at people?s lifestyles – and not only how many days a year they spend in the UK, to assess their tax liability.
Wealthy or not, many people who live outside the UK may think that they are UK non-resident and therefore not liable to pay UK taxes, but under the scrutinising eyes of the taxman they could be found to have UK tax status because of the connections they retain with the UK. It would be wise to be wary of the taxman – for what you believe to be the tax rules regarding residency may be rather different from HM Revenue & Customs? view.
Many people go by the 91 day rule when calculating their tax residence, which is to spend less than 91 days in the UK on average, calculated over a period of up to four UK tax years. But this is a guideline rather than a law and could be ignored if other factors give weight to UK residency. Retaining a strong association with the UK such as maintaining a UK property, especially for family members; visiting the UK on a regular basis for work and keeping strong social ties such as club membership could go against you when HMRC determines your tax status.
It is advisable not to keep a house in the UK after moving overseas but to sell it and avoid buying a smaller property such as a flat for occasional visits. If it is not possible to sell your property because of a weak residential market, it should be let to a third party – not to a friend or a relative. If you do retain a home in the UK then HMRC could argue that your property overseas is more of a holiday home than a permanent residence.
HMRC has not yet revealed full details although it indicated in April that new guidelines covering the strength of your association with Britain could mean that you will be deemed a UK taxpayer even if you abide by the 91 day rule.
Private client partner at City law firm, Wedlake Bell, Emma Loveday, told The Sunday Times: ?Merely counting days is just not enough to maintain non-residency status. HMRC will be considering many other factors and it will be trying to assess what the intention of the individual is when applying for non-residency and whether their lifestyle indicates that they have left the UK and become non-resident.?
?There is currently no statutory definition that sets out clearly and concisely what activities make an individual a non-resident,? Loveday said. However, other factors that could go against UK residency is sending a child to a British boarding school, remaining on an electoral roll, remaining registered with a UK doctor or dentist, keeping a car in the UK and having post sent to your UK address.
HMRC may well send you a letter requesting answers to questions giving evidence that you have left the UK for a settled purpose and that you have clearly separated yourself from UK residence.
? Your full current postal address in your new country of residence.
? Date of departure from the UK.
? Precise dates of when you visited the UK from that date and the reason for each visit.
? Where you stayed on each visit.
? Documentary evidence to support these dates in the form of bank/credit card statements covering the period which indicates where you were at the time of the transactions.
? Copies of utility bills, itemised phone bills, building and contents insurance, property/Council tax bills for your property in the UK and overseas.
? Particulars of arrangements to transfer your furniture and personal belongings to your overseas residence.
? Details of all property transactions during the period.
? A schedule of all bank, building society and credit card accounts during the period.
? Documentation that you are a registered taxpayer in your new country.
Anyone who moves abroad to live needs to be careful to ensure that they have indeed left the UK permanently to avoid being deemed as a UK tax resident. It is not enough to rely on the time based rules, i.e. spending less that 183 days in the UK during a UK tax year or not more than 91 days in the UK averaged over four tax years, but to cut all ties with their homeland as well.
The 91 day rule is not actually law in the UK, as some people who believed they had spent less than 91 days in the UK each year have found to their cost. UK case law is littered with stories of people who claimed they had left the UK and spent less than 91 days there, but were found by UK Courts to have remained UK tax resident.
From 6th April 2009, HMRC?s new publication HMRC6 entitled ?Residence, Domicile and the Remittance Basis? replaces the publication IR20 on the tax liabilities of residents and non-residents. HMRC stresses that HMRC6 is for guidance only and does not have legal effect.
Under note 1.5.22 it states:
?The number of days you are present in the country is only one of the factors to take into account when deciding your residence position?
?You should always look at the pattern of your lifestyle when deciding whether you are resident in the UK. Things you should consider would include what connections you have to the UK such as family, property, business and social connections. Just because you leave the UK to live or work abroad does not necessarily prove that you are no longer resident here if, forexample, you keep connections in the UK such as property, economic interests, available accommodation, and social activities or if you have children in education here.
?For example, if you are someone who comes to the UK on a regular basis and have a settled lifestyle pattern connecting you to this country, you are likely to be resident here.?
Anyone who has concerns about their UK residency status can take professional advice from financial experts Blevins Franks and receive guidance on how to legally minimise their tax liability both in the UK and their country of residence.
By David Franks, Chief Executive, Blevins Franks
18th August 2009