Article provided by Lynne Rowland, Partner at Moore Kingston Smith, for Beacon Gainer, private wealth advisory services group.
Coronavirus may have delayed the departure from the UK for some planning on leaving post-Brexit. A note of caution for anyone contemplating such a move as you may not realise that HMRC may still have an interest in your tax affairs long after you have left these shores. There are complex implications for income tax, capital gains tax and inheritance tax.
Whether you are moving to a holiday home, retiring to a cultural destination or simply relocating for work, make sure you plan properly. First on your to-do list is to know the difference between tax residence and domicile. It is possible to be resident in more than one jurisdiction depending on the local rules; the UK has a Statutory Residence Test for example. Domicile is a legal concept and usually refers to the place you regard as home, for most people this will be your country of birth. The UK also has a concept of ‘deemed domicile’ for people who have been resident here for over 15 tax years.
With tax residence, even if you abide by the regulations of your destination jurisdiction, you must still consider HMRC’s requirements. Your UK tax residence and obligation to file and pay taxes is tied to the April tax year, so be aware of this before you buy your one-way ticket. You might need to calculate days spent in the UK when planning for income tax or capital gains tax exposure. Many other countries calculate days of residence and obligations to pay tax on a calendar year basis.
You can usually change your country of tax residence by spending the requisite number of days there, or taking up a permanent contract of employment, but that does not usually change your domicile, or ‘habitual residence’. Domicile is of primary importance when calculating inheritance tax, which is levied on the value of an individual’s worldwide assets if they are UK-domiciled at death, but only on UK assets if non-UK domiciled. It is extremely difficult to shed a UK domicile acquired at birth, and even if all your ties to the UK are permanently severed, you would still fall into the UK tax net for inheritance tax for three years after departure. Any local estate duties may also be charged, and a claim for the double tax levied would then have to be made.
Capital gains arising once you are non-UK resident would usually not be subject to UK tax, unless relating to disposals of UK land or property. Since 6 April 2019, all disposals of UK land or property, whether direct or indirect, are subject to non-resident capital gains tax. Where other assets such as shares are disposed, and gains are crystallised following departure, if you change your mind about living overseas after a few years and return to the UK, you may be taxed on those disposals in the year you recommence UK tax residency in some circumstances.
Another important aspect to consider is how moving tax residence will affect UK Wills and powers of attorney. The law differs from country to country, so invest time to ensure that your wishes and legal documents can operate as envisaged in the relevant jurisdiction. One approach is to keep them up to date and specify which country’s law should be applied. Another is to make new documents that are recognised in your destination jurisdiction. Alternatively, you could opt to have one for each jurisdiction involved, however be careful that they do not cancel each other out, introduce ambiguity or void the contents of another document. You would not want to be considered intestate or its equivalent in any jurisdiction in which you own assets.
With careful thought and preparation, all these issues can be successfully managed. Your date of departure, with the associated tax consequences, also needs to be considered carefully in advance.
