Since the EU referendum, it has become clear that certain businesses and individuals have decided partially or fully to relocate to the EU. Given the ongoing political and economic uncertainties, it is reasonable to expect this trend to continue. That said, hundreds of thousands of people immigrate to and emigrate from the UK every year. Each one of them has their own reasons for their decision but once the decision has been made they will need to sit down and prepare what can only be described as a terrifyingly long to-do list.
The purpose of this article is to assist you in understanding issues that may impact on your clients if they decide to leave the UK.
There may be other issues that need to be considered but whatever the nature of client’s circumstances, we strongly recommend that they try obtaining UK tax advice.
UK Tax Residency
When advising a client who is leaving the UK, it is important that the client:
identifies the date on which they cease to be UK tax resident;
monitors their UK tax residence status in subsequent years, especially if they continue to visit and work in the UK; and
is up to date with his UK tax compliance, reporting where necessary to HMRC.
Residence – When has the client actually left the UK?
An individual will not leave the UK tax net fully until they cease to be UK tax resident, as determined under the Statutory Residence Test. It is therefore important for the individual to take advice as to what this means: The basic rule is that an individual is UK tax resident until the end of the tax year in which they leave the UK, but there is a “split year rule” that can stop this. For example, if your client leaves the UK to work fulltime abroad, they may cease UK tax residence immediately. In the immediate tax years that follow your client’s departure from the UK, it is in theory possible for them to be UK tax resident even if they only spends 16 days per year in the UK. This is still possible even if they have acquired tax residence elsewhere. Unless the client is non-resident for 5 tax years, a return to UK residence could impact on UK tax payable on some income, and capital gains realised whilst non-resident.
Residence – Formalities
It is not a requirement for an individual to tell HMRC that they have ceased to be UK tax resident. However, if an individual files self-assessment tax returns, we suggest that the individual files a final tax return to advise HMRC that they have left the UK. Alternatively, it is possible to write to HMRC to advise them of his departure. If an individual has been employed in the UK and paid under the PAYE system, a Form P85 can be filed with HMRC to tell them the individual is leaving/has left and reclaim any overpaid tax.
Should your client leave the UK, it is important for him:
to understand his ongoing exposure to UK personal taxes, if any; and
to ascertain what steps he can take to restructure his assets and remuneration from a UK and non-UK tax perspective.
Your client’s individual’s ongoing exposure to UK personal taxes will be determined by his UK tax status and either the situs of the asset or the source of the income and gains. The UK tax status is made up of two components; residence and domicile. A useful exercise may be to review your client’s assets to understand the impact of how his assets and remuneration may be taxed in the UK once he has left. Such an exercise may enable your client to take steps to restructure his affairs to mitigate his UK tax exposure. Importantly, such a review may also result in your client refraining from restructuring his affairs as it may be shown that to do so would be less advantageous.
UK Tax – UK Residential Property
If your client has a home in the UK he should consider selling it within 18 months of his departure. If he sells his property more than 18 months after it ceases to be his main home, he will be subject to UK capital gains tax (at 28%) on at least a part of any gain he realises on the sale. As a non-UK tax resident he is only liable to UK capital gains tax on the gain since 6 April 2015. There are very strict tax compliance rules that apply to non-UK residents who sell UK residential property and these should be fully understood. Failure to comply may result in penalties and interest.
If a client keeps his UK home and rents it out he will be subject to UK tax on the rental profit. He should check that the terms of his mortgage allow him to let it. Under the HMRC’s non-resident landlord scheme, tenants are required to deduct tax unless the client applies to HMRC for the rent to be paid gross. An annual return will still need to be completed to collect the tax due.
UK Tax – Remuneration
On leaving the UK, it is important for your client to understand whether he may still be subject to UK income tax on any future remuneration. This may include salaries, bonuses, share incentives and benefits in kind. The client’s exposure may depend on:
the relevant contract or agreement;
where the work was/will be undertaken;
the employer’s residence;
any tax treaties between the UK and his new country of residence.
There may be an opportunity prior to leaving the UK to restructure your client’s remuneration and/or contracts to secure tax advantages both in the UK and in the country of arrival and this should be fully understood prior to your client’s departure from the UK.
UK Tax – Inheritance Tax
If your client has lived in the UK for more than 15 out of the 20 years before he leaves, be aware that he remains deemed domiciled for inheritance tax purposes for at least 4 full tax years after he leaves. If he has a UK domicile at common law, losing a UK domicile may take longer. The UK has a limited number of tax treaties with other states that may prevent an individual’s non-UK assets being subject to UK inheritance tax but advice should be taken in relation to this.
Regardless of the basis upon which your client has been living in the UK, there is no legal requirement to inform the UK department which deals with immigration of his departure.
Unless your client is a UK citizen, leaving the UK can affect his current or future rights to live or work in the UK. If he intends to return to the UK in future he may be able to secure the rights he has acquired before he leaves. For example: If he has spent five years continuous years in the UK as an EU citizen, applying for permanent residency.
Published: 22 November 2017
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