There are potentially huge tax advantages in becoming UK non-resident if you spend much of your time out of the country. Iain Yule shows how to qualify for this privileged status – it depends on whether you are just visiting, working or resettling abroad – and examines its benefits.
So, as you pause briefly to bid goodbye to Blighty en route to your place in the sun – just think. Am I leaving forever, or is this just a trial separation?
Well, is your new home your real love? Or does your heart still lie in those wet, green, misty, often grimy shores of Britannia?
Your answers to these questions could significantly affect your finances, so be careful what you say. The taxman may just be taking note.
Yes, your time abroad could mean that you start to leave Britain in more than the physical sense. In tax terms too you may be leaving British jurisdiction.
This could turn out to be a boon or a curse, depending on how you play it.
If your bolthole in the sun is just an occasional holiday home, used for a few weeks each year, then it is unlikely that you will lose your UK resident status.
This is potentially bad news for your finances, unless you watch out for a tax trap.
Since you remain UK resident any income or gains you make on property – even overseas – are potentially assessed for tax in the UK. You must declare in a self-assessment tax form any income from letting out the property or gains from selling it.
What’s more, the income and gains may also be taxable in the country of your holiday home. The stuff of nightmares: two tax authorities chasing you.
Britain has reached agreement with most other countries so that tax is not automatically levied twice on the same income or gains. But it may take you a while to unravel this double tax whammy, and you may need to employ a tax specialist.
Going To Work Abroad
If you are going to work abroad you are provisionally considered non-resident from the day you leave. But this beneficial status has to be confirmed by remaining out of the country – except for relatively brief visits home – for a complete tax year, which runs from 6 April until 5 April the next.
To retain non-residency those visits home must not exceed a total of 183 days in any one tax year, nor an average of 90 days per tax year for the whole of your time abroad.
If you do this, congratulations. You are officially an expat, and the UK taxman should not levy taxes on any non-UK income or gains you make. Your new ‘host’ country will want to tax you, but hopefully at a lower rate than does the UK. Some countries, particularly in the Middle East and the Caribbean, charge little or no income or wealth taxes.
If you cannot prove you are non-resident, the UK taxman will want his cut of your money.
There’s a useful guide to the rules regarding non-residence, the Statutory Residence Test, on World of Expats.
Going to work abroad is what the taxman calls a ‘settled purpose’, and as such is good reason for you to be treated as non-resident. Resettling overseas, perhaps at retirement, may not qualify as a ‘settled purpose’ – at least, not immediately.
The taxman’s tests in these circumstances are if your absence from the UK covers at least three years, or if evidence becomes available to show that you have left the UK permanently.
So, potentially you may have to wait three years before the taxman treats you as non-resident. This often happens when those who move abroad retain a home back in Britain.
But if you are truly resettling to a place in the sun, and have given up your UK property, the taxman is likely to regard you provisionally as non-resident from the date of your departure.
Then, if you are careful about not visiting the UK too often, you can wave goodbye to UK income and capital gains taxes forever.
But be sure to check your personal circumstances against the terms of the Statutory Residence Test.
Iain Yule is Editorial Director of worldofexpats.com