Leaving the UK for tax purposes

These are worrying times for UK taxpayers, particular those in the higher income bands. Regardless of who wins the next election, the imperative to mend public finances will inevitably lead to higher taxes. In the meantime, the 50% tax is about to impact anyone with an income above £150,000 per annum, while a phased reduction in personal allowance for anyone earning in excess of £100,000 will only add to the pain.

Overseas residence in a low-tax country provides one alternative for those wishing to avoid the increases. At first glance this seems relatively straightforward. If you are no longer a UK resident you can receive dividends or investment income from UK sources without having to pay British taxes. Capital gains on assets located in the UK can also be realised tax free if you are not a resident here. In some overseas jurisdictions there will be no tax to pay at all, so income and gains could be received free of all taxes.

However, before you consider a move overseas, you should be fully aware of the rules. Essentially, there are two ways to acquire non-resident status:

• By taking up a contract of employment that spans at least a full tax year
• By moving out of the UK permanently – for tax purposes this means a minimum of three years.

While the prospect of leaving Britain for three years to take up residence close to a sun-kissed beach or in a sophisticated capital city may not seem like a great hardship, the need to sever all ties to the UK (at least to the extent required by the taxman) can be difficult. While the rules allow you to return to the UK for 90 days, HMRC will be looking at other aspects of your life as well. Thanks to a wealth of case law, expatriates may find the taxman challenging their overseas residency for a range of reasons, including continued social, family and business links with Britain. These links can override the 90-day rule.

Therefore, the first step in considering a move abroad is to discuss your plans with an advisor to establish whether any continuing connections with the UK are compatible with non-resident status. Where you end up moving to will also be a factor, as you could find yourself moving to a jurisdiction with even higher taxes!