BBC’s Revelation: To Avoid UK Tax You Have to Emigrate

Sarcastic moment coming up I’m afraid.  Imagine our complete and utter surprise when we read a BBC article recently about how to avoid UK taxation and were informed that to avoid UK tax you actually have to emigrate! 

My goodness – I mean, who would ever have thought such a thing!  In fact, it wasn’t even the BBC who dropped this incredibly earth shattering bombshell, it was none other than a spokesperson from the accountancy firm Saffery Champness who was quoted in the appalling article.

I suppose we’ll just have to assume that Saffery Champness clients are exceptionally dim if they need to be told: “If you want to be sure you will not be regarded as UK tax resident, you need, in effect, to emigrate.”  Either that or the person quoted assumed that the readers of the BBC article would be very poorly educated.  Well, just in case anyone is in any doubt, if you do want to stop paying British taxes you have to become non-resident – and here’s how the latest rules work to that end.

It used to be a fact that if you obeyed the fairly straightforward rules that the taxman at HMRC devised, you would escape the British taxation net.  The rules are: -

“Normally if you leave the UK to work abroad full-time, you will become not resident and not ordinarily resident in the UK if your absence and employment from the UK covers a complete tax year (i.e. 6 April to 
5 April), and you spend less than 183 days in the UK during the tax year, and your visits to the UK do not average 91 days or more a tax year over a maximum of 4 years.  For visits to the UK, days of arrival and departure are not normally counted as days spent in the UK.”

However, the keyword in that paragraph was the very first word – namely “normally.”  Because you see, HMRC reserves the right to interpret its own rules on a case-by-case basis.  Therefore, if you look at tax avoidance cases that have recently been investigated and brought to court by HMRC, you will see that in certain instances, the days of arrival and departure have been counted.  This is because HMRC believed in each case that the person they were investigating hadn’t really cut significant ties with Britain – that they were just hoping back and forth between the UK, where it was alleged they maintained their main home and their life, and abroad where they remained just barely long enough to attempt to claim non-residency status.

Therefore, yes, if you do want to avoid the likes of UK income tax on your income earned outside of Great Britain, then you need to emigrate.  I.e., you need to leave your old life behind.  This means you don’t need gym or golf club membership in the UK anymore, your children won’t go to state school in the UK anymore, your spouse (if you’re still happily married!) will reside with you abroad, and you will establish the makings of a brand new life overseas.  Anything and everything could be looked at by HMRC if you were suspected of skimming and skirting the rules of residency – such as whether you maintained working British credit cards, a mobile phone and even if your main residence appears to still be in the UK.

Now, for more of us none of this is applicable – if we make the decision to move abroad, we move abroad.  We ideally complete the Revenue’s P85 form when we leave, (note there is a P86 form to fill in if you repatriate), and we pack up lock, stock and barrel and get out.  However, we do still need to be informed about the tax rules in case we fall foul of them.  So here they are in a nutshell…

If you abide by the taxman’s rules outlined above relating to the number of days you need to be living away from the UK and you are therefore non-resident in Britain for tax purposes, you will not have to pay UK income tax on any income you earn from anywhere in the world other than Great Britain!  Anything you do still earn in the UK such as an income from a British based investment or rent on a UK property can still be subject to British income tax.  However, that’s why the UK has over 100 double tax treaties in place – so that you’re not taxed once in the UK and twice in your new nation of residence.

By becoming non-tax resident in the UK you also avoid having to pay National Insurance Contributions – although some people make voluntary contributions if they know they will only be away for a short time for example.  Then, after 5 years of living away, you can legitimately avoid UK capital gains tax – but no matter how long you remain non-resident, unless you become non-domiciled your worldwide estate will be subject to British inheritance taxation when you die.

To become non-domiciled takes time, effort and is virtually impossible – please see an old article entitled Changing Your Tax Status for an introduction to this subject matter.

It is actually a very simple state of affairs – unless you’re trying to pull the wool over HMRC’s eyes by pretending to do one thing (i.e., move abroad), whilst in actual fact, doing quite something else, (i.e., maintaining a significant presence in the UK).  If you understand the rules, fill in the relevant forms, establish tax residency in your new nation and have moved to a country that has a lower rate of tax than Great Britain, you’ll be on to a tax winner!