When thinking about leaving the UK, these are the tax considerations to bear in mind – before you fly, says Dominic Conde-Cole
Over 350,000 people leave the UK each year, but unlike Prince Harry and Meghan Markle, few people give up a royal title before moving.
But there are a number of considerations for anyone looking to move away from the UK on a temporary or permanent basis – royal or not. Once important issues like housing, employment, education and staying in touch with family are dealt with, the tax and legal consequences of a move should be given careful thought.
The UK’s test of residence (for tax purposes) has been spelt out in statute since 2013. This test is mainly to assess whether someone is liable to income tax and capital gains tax in the UK. There are other rules that also deal with corporation tax and inheritance tax.
With today’s ease of global mobility, it is quite possible to be resident in more than one country at the same time. In the absence of specific rules in a tax treaty between countries, it is also therefore quite possible to be subject to double reporting, or worst of all, double taxation.
There are two sure-fire ways in which people leaving the UK can ensure they will no longer be UK tax resident, neither of which may be ideal.
The first is to spend fewer than 16 days in the UK during the course of the tax year. A day should be read as a ‘midnight’ for these purposes, so additional day trips are possible. It may give your private jet a workout if you intend on visiting family – Christmas at Sandringham may have to be curtailed.
The second sure-fire way is to work full time (which is calculated by reference to the number of hours which the lawmakers deemed sufficient) overseas during the course of the tax year. This won’t work however if there are significant breaks from work or if some work continues in the UK (technically this means more than three hours work in the UK on more than 31 days). On top of that, you can’t spend more than 90 days in the UK during the tax year (whether for business or pleasure). This second option is thus a little trickier to monitor, even more so if you are self-employed or have an unusual vocation that does not fit into HMRC’s generally understood concept of working.
If neither of these options are available or workable, then the law instead looks at the number of ties one has with the UK and subsequently determines the number of days that one can spend here without being considered tax resident.
There are five ties relevant for those leaving the UK. Retaining available accommodation in the UK – such as a cottage in the grounds of a royal estate – would be one tie, for example. Other ties include a family tie, a work tie, a day count tie and a country tie (each of which has its own definition in statute).
The maximum number of days one can spend in the UK under the ties test without being UK resident varies from 15 to 120, depending on the number of ties they have. To state the obvious: the more ties, the fewer days.
Generally, an individual who is resident for part of a tax year under the statutory residence test is considered resident for the entire tax year. There are however some exceptions whereby one can be considered resident for only part of the year.
For those leaving the UK after a period of residence this will only apply where an individual or their partner is starting full-time work overseas, or where their UK home is no longer available to them.
For those that have been resident in the UK for less than 15 years, liability to UK inheritance tax is governed by one’s domicile, rather by one’s residence.
It is advisable to take advice on both domicile and residence before leaving the UK and taking up residence in another country, as any tax or estate planning after the event is sometimes ineffective or not possible at all.