Moving Abroad? Don’t Assume Your UK Tax Obligations End When You Leave

This article considers the UK Income Tax and Capital Gains Tax implications of moving abroad. It does not cover Inheritance Tax, trusts or wider estate planning matters.

Many people assume that spending fewer than 183 days in the UK automatically makes them non-UK resident. For Income Tax and Capital Gains Tax purposes, the position is often far more complicated.

A move overseas can affect the taxation of employment income, rental income, investments, property and business interests. It is also important to remember that the UK position is only part of the picture. The tax rules of the destination country, and any applicable double tax treaty, may also need to be considered.

Whether you remain UK resident depends on considerably more than simply counting days. Family connections, accommodation, working arrangements and previous residence history can all be relevant. As a result, two individuals spending the same amount of time in the UK can have very different tax outcomes.

For anyone with significant UK connections, property, investments or business interests, taking advice before a move takes place is often far easier than trying to resolve the tax consequences afterwards.

Counting days is only the starting point

The 183-day rule is probably the best-known aspect of the residence rules, but it is often misunderstood.

Spending fewer than 183 days in the UK does not automatically make someone non-UK resident.

For many individuals, particularly those with homes, businesses, investments or family connections in the UK, residence depends on a wider review of their circumstances.

Questions commonly include:

• Will your spouse or children remain in the UK?
• Will you keep your UK home?
• Will that property remain available for your use?
• Will you continue to work while visiting the UK?
• How often do you expect to return?

These factors can be just as important as the number of days spent here.

Leaving during the tax year

Many people assume they are UK resident until the day they leave and non-resident from the following day.

In reality, residence is generally determined for the tax year as a whole.

In certain circumstances, split-year treatment may apply, allowing the tax year to be divided between a UK period and an overseas period. However, this is only available where the statutory conditions are satisfied and should never be assumed simply because a person has moved abroad.

Although split-year treatment can be valuable, whether it applies depends on the precise circumstances of the departure and the conditions of the relevant statutory case. Cases 1 to 3 apply to individuals leaving the UK, whilst Cases 4 to 8 apply to those arriving in the UK.

For this reason, obtaining advice before departure is often considerably more valuable than trying to reconstruct the position after the end of the tax year.

What about your UK property?

Retaining a property in the UK does not necessarily mean that you remain UK resident. However, it may still be relevant when applying the residence rules and can have ongoing UK tax consequences.

For example:

• rental income from a UK property will generally remain within the scope of UK Income Tax, although the amount of tax actually payable will depend on the individual’s circumstances as well as any reliefs, allowances and deductions available;
• UK reporting obligations may continue to apply; and
• a future disposal of the property may still give rise to UK Capital Gains Tax.

Anyone considering selling, retaining or letting a UK property as part of an overseas move should understand the tax implications before making a decision.

Working in the UK after moving abroad

It is increasingly common for people who move overseas to continue carrying out some work in the UK.

UK working days can be relevant when determining residence and may affect whether split-year treatment is available.

Even where an individual becomes non-UK resident, income relating to duties performed in the UK may remain taxable here.

Accurate records of travel and UK working days can therefore be extremely important.

Income arising after departure

Becoming non-UK resident does not necessarily mean that all UK tax obligations come to an end.

Depending on the circumstances, UK tax may continue to apply to certain types of UK-source income, including rental income from UK property, income relating to duties performed in the UK and other UK-source receipts.

The taxation of particular income will depend on the domestic UK rules, the rules of the country to which the individual has moved and, where applicable, the provisions of any double tax treaty.

This is why a move overseas should never be considered solely from a UK perspective.

Capital Gains Tax does not disappear

A common misconception is that becoming non-UK resident means that future asset disposals automatically fall outside the UK tax net.

This is not always the case.

In particular, gains arising on UK land and property can continue to be taxable in the UK, even where the owner is no longer UK resident.

For individuals considering the sale of an investment property, a second home, a business interest or other significant assets, the timing of the disposal can sometimes have a material impact on the overall tax outcome.

Temporary moves abroad

Not every move overseas is permanent.

Where an individual intends to return to the UK after a few years, the temporary non-residence rules may need to be considered.

In broad terms, certain income and gains realised during a period of non-residence can, in some circumstances, be brought back into charge when the individual returns to the UK.

Anyone planning to move abroad for a limited period before returning should therefore take advice before implementing significant transactions.

Significant transactions before and after departure

The period before and after an overseas move can provide an important planning opportunity.

Whether you are considering selling a business, disposing of an investment property, realising gains within an investment portfolio, taking a substantial dividend or restructuring your affairs, residence and timing should be considered together.

A relatively small difference in timing can sometimes have a material effect on the overall tax position. For that reason, advice should ideally be taken before becoming legally or commercially committed to a transaction.

Moving to a country with a different tax year

A practical issue that is often overlooked is that the destination country may not use the same tax year as the UK.

The UK tax year runs from 6 April to 5 April, whereas many countries operate on a calendar-year basis. This can make the first and final years of residence more complicated and sometimes result in filing obligations in more than one jurisdiction.

Where a double tax treaty exists, it may help determine residence for treaty purposes and provide relief from double taxation. However, the outcome will depend on the provisions of the particular treaty and the individual’s circumstances.

Information to gather before moving

Anyone considering a long-term or permanent move overseas should begin by gathering the relevant information.

This will usually include:

• details of previous years of UK residence;
• expected UK and overseas travel patterns;
• anticipated UK working days;
• family circumstances;
• UK and overseas accommodation arrangements;
• employment and business interests;
• expected sources of income;
• significant investments and assets; and
• any transactions that may take place before or after the move.

Having this information available at an early stage often makes it far easier to identify potential issues and planning opportunities.

Keep appropriate records

Residence questions are often revisited several years after the relevant tax year.

For this reason, it is sensible to retain:

• travel records and itineraries;
• evidence of UK and overseas accommodation;
• employment contracts;
• records of UK working days;
• supporting evidence of overseas residence;
• diary and calendar records; and
• documentation demonstrating where you and your family were living during the relevant period.

Good record keeping can be invaluable if HMRC later reviews the position.

Plan before you go

Moving abroad can be an exciting opportunity, but it is important not to assume that leaving the UK automatically ends your UK Income Tax and Capital Gains Tax obligations.

The UK residence rules are complex and often depend on far more than simply counting days. Even where an individual becomes non-UK resident, UK tax may still apply to certain types of income and gains, and additional considerations can arise where there is an intention to return to the UK in the future.

Residence, Income Tax and Capital Gains Tax issues are often easier to address before a move takes place than after the event. If you are considering moving abroad, returning to the UK or spending time between multiple jurisdictions, I would be happy to discuss your circumstances and the potential tax implications in more detail. Please contact me at lanka.bandara@theburnsidepartnership.com.

Disclaimer: This article is for general information only and should not be treated as legal advice on your individual circumstances.