An increasing number of people are making the decision to work and move abroad. For many of these people one of the big bonuses of doing so would be to reap the benefits of overseas tax systems and thus going a long way to preserving their individual wealth.
The big plus point found in other countries is exemption from UK income tax. To do this you may have to jettison your UK residency status and become a non-UK resident. Depending on where your new place of residence is you will then see a marked improvement on your tax contributions, in some places, such as Dubai, you may pay no income tax at all.
By becoming a non-UK resident you will also see other benefits including the ability to garner interest on funds in your UK bank accounts free from income tax, gain UK dividends without the cost of withholding tax, and also becoming exempt from capital gains tax on any assets you gain upon departing from the UK.
Your residency status depends on a number of factors. The UK government looks at each individual separately and generally your ‘residency’ is based on the dictionary definition: “dwell permanently or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.” To be classed as a non-resident of the UK you have to show that not only do you live and work abroad, but also that you do not have strong ties within the UK that could affect your claim. For instance, if you leave and make no visits back to the UK then you could easily claim to have become a non-resident. However if you leave the UK but return regularly to see friends and family, or if you have a vested interest, perhaps in the form a property, then you may find that your claim is rebuffed.
Your claims will be helped greatly if you stay away from the UK entirely for at least the first tax year, as a rule 90 days is a good number to limit your visits to. If you meet the regulations then you will become non-resident the day you leave English shores, and return to residency status the day you venture back to the UK permanently. So to ensure your claim is successful it is recommended that you are already in full time employment abroad for at least a full tax year and be able to stay away from the UK for the necessary days.
Even if you own a company in the UK you can become a non-resident by producing an employment contract from another country, this can include a subsidiary of your company.
Violations of non-residency
There are a number of ways you can violate your status and fall foul of the taxman. Spending too much time in the UK is the most obvious, with working for less than a full tax year abroad another easy way of breaching status. HMRC have said: “if there is a break in full-time employment, or some other change in your circumstances during the period you are overseas, we would have to review the position to decide whether you still meet the conditions” and “If at the end of one employment you returned temporarily to the UK, planning to go abroad again after a very short stay in this country, we may review your residence status in the light of all the circumstances of your employment abroad and your return to the UK”.
You should also ensure you are in full time employment as the HMRC may challenge you if you are not, even if you spend a large amount of time away from the UK.
Of course, your new residence is likely to have its own set of tax laws so be sure to research this subject thoroughly, and speak to a specialist financial adviser to discuss your options.