Leaving for sunnier climes just got a lot more complicated

MORE than six million British nationals now live abroad permanently, roughly equivalent to 10 per cent of the entire UK population, or all of the Scottish population.

But have they left the UK tax network?

Relatively new HM Revenue & Customs (HMRC) guidance on residence and domicile, introduced in April last year, could cause real financial headaches for those thinking of leaving, and indeed for those who think they have already left.

It is the word guidance which is key here because there remains no statutory definition of tax residency and domicile. What HMRC has provided is a manual which "has no legal force, nor does it seek to set out regulation or practice".

Under the old guidance, if an individual spent 90 days or less in the country per year on average over a four-year period, they were generally treated as non-UK resident for tax purposes. Since 6 April last year, the position has become much less clear.

There are many pitfalls for the unwary.

Did I stay or did I go?

Although the 90-day rule will still be taken into consideration, those either visiting or leaving the UK will be subject to "many different factors" in determining their tax residence status in the UK during a tax year. These include:

• Whether you have retained property in the UK which is available for your occupation.

• The amount of time spent in the UK each year and the regularity of visits to the UK.

• Whether the main centre of your economic activity or business ties is in the UK.

• Whether you have family ties in the UK, such as immediate family remaining here or children being educated here.

• Whether you are still on the UK electoral register.

• Whether you continue to have other ties to the UK such as credit cards, a mobile phone, a doctor, dentist etc.

Practicalities

If leaving, you should, in addition to counting days:

• Formally notify HMRC of your intention to emigrate and complete form P85.

• Sever all ties with the UK: resign from your job, close bank accounts, cancel memberships, take children out of school, do not vote in elections and do not retain a UK address.

• Sell accommodation or at the least let it on a long lease that gives you no right of occupation.

• In your new homeland, buy a house, make a will under local law, obtain citizenship, open bank accounts and try to get on the electoral register.

• Stay out of the UK for one whole UK tax year (no visits at all), and make sure that you remain abroad for five full UK tax years, in which no more than 90 days a year on average are spent here over any four year period.

Alarmingly, many who left under the old guidance may be blissfully unaware that they may be falling foul of the new guidance.They could find themselves in for a nasty shock if HMRC writes to tell them that they have been liable to UK income tax, capital gains tax and inheritance tax all along.

Retaining ties to the UK and lifestyle choices can seriously jeopardise residency status and many people, including those who have already left and think they are no longer resident here, need to reassess their lifestyles and take professional advice.

• Ronnie Ludwig is a partner in Saffery Champness Chartered Accountants. Ronnie's podcast on this subject is available on www.saffery.com