With the referendum on Brexit now only days away, it seems an opportune moment to consider how easy (or not) it is to leave the UK and cease to be UK tax resident.
Many long term UK tax residents ‘non-doms’ are now planning their departure from the UK before they become deemed domiciled in the UK for all tax purposes. Under proposed new rules, due to apply from 6 April 2017, this will happen in any tax year when they have been UK resident for at least 15 out of the previous 20 tax years.
In our experience , most of those planning to leave are not doing so because they object to paying UK tax on their worldwide income and gains, but because of the sheer complexity of their worldwide investments and income sources which will have to be included on their UK tax returns (with the associated increases in fees for their tax returns and advice as how to treat certain overseas investments for UK tax purposes). The same individuals also face increasing uncertainty over how offshore trust structures, income and gains arising before becoming deemed domiciled, and assets acquired with such income and gains will be treated. HMRC seems no closer to issuing legislation or guidance in these areas.
But how easy is it to cease to be UK tax resident?
If the UK votes to leave the EU, those with a British passport (including non-doms who acquired British citizenship) may find it harder to become resident in another EU country. This will probably be more of an issue for those who wish to work in, or retire to, popular EU locations such as France, Spain or Portugal, rather than for wealthy non-doms who will either be returning to their home country or can afford to become resident in places like Monaco, Switzerland or the Far East.
But, whatever the reasons for leaving the UK, everyone has to meet the requirements of the statutory residence test in order to cease to be UK resident and therefore no longer be subject to UK tax on non-UK source income and gains. Unless an individual is going abroad to carry out full time work outside the UK, if they retain sufficient links to the UK such as: family or accommodation in the UK, spending too much time in the UK, whether for work purposes or not, or even just spending more time in the UK than in one other country, they can still find that they are treated as UK tax resident.
While double tax treaties can be helpful in deciding where an individual is deemed to be tax resident if they are otherwise resident in two or more countries, this is of no use if there is no double tax treaty, which is often the case where the individual has moved to a ‘tax haven’. In addition, it is often difficult to achieve split year treatment, ie to become non-UK resident from the actual date of departure, so many will find that they remain UK resident for the remainder of the tax year of departure.
The key, of course, is advance planning in both the UK and the overseas country of future residence, to prevent any nasty surprises once it is too late .
If you would like to discuss these issues in more detail, please contact Karen Clark or your usual RSM adviser.