Moving Overseas to Save Tax? This could be more taxing than you think…

After weeks of lockdown, and searching for some much needed escape from COVID news, I came across BBC 2’s latest documentary “Inside Monaco: Playground of the Rich”. It allowed for a fascinating insight into this country which has extraordinary wealth, attracting the super rich from across the world.  

Monaco has much to offer these individuals, not least a beautiful Marina to park your luxury yacht, but let’s be honest, in most cases, they choose to live there because it has a zero tax policy, and so if they are resident, they don’t have to pay any income tax.  

It’s worth saying however, that for many individuals looking to reduce tax on their global income, successfully securing tax residence in one jurisdiction, and shaking off residence in another, is unlikely to be quite so simple as getting on a plane and flying into the new country.  

To be, or not to be… Tax Resident 

Focusing on the UK, being a tax resident here will automatically result in worldwide income and gains becoming subject to UK tax, no matter where this is held, and irrespective of this being paid to the UK. This is the default position, and whilst non UK domiciled individuals may claim exemption on unremitted overseas sources, this is not automatic, must be formally claimed, and can impact other allowances. Domicile is usually connected to the country your father considered his permanent home where you were born.

HMRC have definitive tests to determine if someone remains resident in the UK, and this is not just about spending less than 183 days in the UK. If you have a UK home, and spend more than 30 nights there (without spending a similar number of nights in an overseas home), or spend as few as 16 days in the UK when you continue to have ties/connections here, you could potentially be seen as UK tax resident, even if you spend more of your time overseas in any tax year.  

When leaving or coming back to the UK, it is possible to split the tax year into a UK and overseas part, but again HMRC’s qualifying criteria means this isn’t a “slam dunk”, and the legislation must be carefully applied to each individual’s particular circumstances. 

Different Rules for Different Taxes  

Generally non UK residence allows you to  remove overseas income and gains from the UK tax charge, but if you do not also achieve 5 years outside the UK, the “Temporary Non Residence Rules” allows HMRC to tax certain sources of income, and gains on assets sold that were held prior to leaving the UK. 

Liability to UK Capital Gains Tax (CGT) on sales of UK land and property applies, even if non UK resident, and even if owned via a company or trust. Plus sales must also be reported to HMRC within 30 days. 

Inheritance Tax (IHT) is linked to your domicile. You could therefore find yourself fully liable to UK IHT, even if non UK resident and no assets are held in the UK. 

Tax Treaties  

It’s also important to consider not just domestic tax legislation, but the Treaties in place between jurisdictions involved. Taxing rights detailed within these Treaties could override domestic tax law.  

Global Transparency 

The OECD’s Common Reporting Standard Initiative (CRS) has resulted in over 100 countries exchanging financial information, including 47M offshore accounts, worth some $4.9 Trillion.   

As a result, Tax authorities across the world have chosen to introduce severe penalty regimes to those who continue to flout tax reporting requirements, and so it is more important than ever before to ensure your global tax affairs are reported correctly. 

If you are relocating, whether that be with the aim of saving tax or otherwise, then given the complexities involved, we would recommend speaking with specialist tax advisors to guide you through the process.

At AAB we have extensive experience and specialist global tax expertise to help you and ensure that your tax affairs are 100% correct. For more information please contact Lynn Gracie, Head of International Private Client Tax or your usual AAB contact.