Caught in the net

On leaving the UK, many expats may consider themselves to be out of the UK tax net, but there are some taxes that still need to be considered.

Income tax and CGT

Although you may not be UK resident for tax purposes, you may still have an income tax liability on some UK source income. If you have a property in the UK that you are renting out, the agent will need to withhold 20 per cent income tax, unless you enter the non-resident landlords scheme. In addition, where payments are made for employment income (including pensions) where the duties are or were performed in the UK, income tax may be payable.

There are, in many instances, double tax treaties, which will allow for tax to be paid only in the country in which you are resident. However, you will need to ensure that you are correctly taxed in the correct country, for example ensuring that HMRC in the UK operate the correct tax code on a pension or employment income so the income is not taxed.

If double tax treaties are not in place between your country of residence and the UK there may be a claim to make for double tax relief. Therefore, in some instances it will be necessary to complete a UK tax return. Indeed, if HMRC send a notice to complete a tax return, this will still need to be completed, regardless of whether you are UK resident or have a tax liability in the UK. You can declare on the return that you are not UK resident.

By becoming non-UK resident you cease to be liable for UK capital gains tax on disposals. However, should you later decide to return to the UK, and it is within five years of leaving, you will be taxable on your return on any disposals of assets (including gifts or sale) while you were abroad.

Inheritance tax

Even if you have moved abroad, UK inheritance tax can still be relevant for assets in the UK and on worldwide assets. The extent to which UK inheritance tax is payable depends on whether you are considered UK domiciled or non-UK domiciled. An individual’s domicile is the country in which they have their permanent home or to which they ultimately intend to return. This is separate from the country in which they are resident or their nationality. In the UK, you can only have one domicile at any given time.

There are a few determining factors of domicile. Domicile of origin (the domicile acquired at birth and usually follows your father’s domicile) is the most common type. The next is domicile of choice. Someone who is UK domiciled will find it very difficult to lose that domicile (and gain a domicile of choice); it is not as simple as moving abroad. You must prove that you have acquired a domicile in your new country and in effect set up a new home there severing all ties with the UK.

For inheritance tax purposes, a person will also be deemed to be domiciled in the UK if they have been resident in the UK for at least 17 out of the last 20 years and for 36 months after ceasing to be domiciled in the UK. So, if you leave the UK and do acquire a domicile of choice there will still be UK inheritance tax payable if a taxable event occurs within three years of leaving the UK.

If you consider yourself to be non-domicile, you will be subject to UK inheritance tax when you pass away on assets situated in the UK. For example, investment property in the UK held in direct ownership will be subject to inheritance tax. If you are UK domicile you are subject to inheritance tax on death on your worldwide assets.

UK residence

Many will have heard that HMRC are to issue new rules on UK residence, and when moving abroad and out of the UK tax net you need to be comfortable that you are truly non-resident.

After 6 April 2013, an individual will automatically be non-UK resident if they:

• spend less than 16 days per annum in the UK

• have left the UK to work abroad full time;

• were not UK resident in the prior three tax years and spend less than 46 days per annum in the UK.

Therefore, someone just leaving the UK and not looking to work aboard will need to make minimal visits to the UK to be treated as non-UK resident.

If someone is not automatically non-UK resident, but does not meet the automatically UK resident rules then they will have to consider their number of days in the UK combined with factors that connect them to the UK, such as:

• Do they have accommodation available in the UK for a continuous period of at least 91 days in a tax year?

• Do they spend at least 40 days working in the UK (where a working day is three hours’ long)?

• Is their spouse, civil partner or child/children UK resident?

• Have they spent more than 90 days in the UK in at least one of the previous two tax years?

• When leaving the UK, is the UK is the country where the greatest number of days have been spent?

Overseas tax

When leaving the UK it is also important to check the tax position of the country that you are moving to. While the tax system in some countries may be similar to the UK, they all have unique variations that should be checked. You may need to ask a tax adviser to assist for the first time. Unlike in the UK, some countries require all resident individuals to file annual tax returns.

Additionally, in the current economic climate, some countries are looking to tax resident individuals further than ever before. An example is the reintroduction of the Spanish wealth tax, which affects both Spanish resident individuals and Spanish non-resident individuals holding assets in Spain. Therefore, if you are moving abroad, continue to consider UK tax liabilities as well as researching the tax regime in your new country.

Lucy Brennan is a partner in the private wealth team at Saffery Champness