By DAVID FRANKS features@algarveresident.com
David Franks is an accomplished and experienced practitioner in both UK and overseas taxation. He lectures widely on taxation issues, in particular in relation to investment planning. David holds the Investment Management Certificate and is the Chief Executive and Finance Director of the Blevins Franks Group.
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.
Lord Justice Moses said: “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 “permanently or indefinitely” in the heading:
“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 are not an employee – e.g., you are retired, even if below retirement age – and 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”.
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 retain a UK home it would be prudent for your home abroad to be larger than the UK one. Retention of a UK home 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 you sell your UK home or rent it out to a third party.
• Move personal effects, cars, family pets etc. to your 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 school in Henley. There is, however, no need 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 of residence.
• Dispose of UK investments and plan to re-invest abroad.
• Close UK bank accounts and credit cards and open new ones in the country where you have moved.
Once you have made a ‘clear break’ with the UK, it is still possible to visit relatives and friends there, 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 may be treated as remaining UK resident, regardless of the number of days you spend in there each year.
A tax and wealth management firm like Blevins Franks can advise you on tax and residency issues 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.
To keep in touch with the latest developments in the offshore world, check out the latest news on the Blevins Franks website by clicking the link on the right of this page.
