After weeks of lockdown, and searching for some much-needed escape from COVID-19 news, I came across BBC 2’s latest documentary, Inside Monaco: Playground of the Rich, says Lynn Gracie, head of international private client tax at Anderson Anderson & Brown.
Monaco has much to offer the super-rich, not least a beautiful marina for their luxury yachts, but, in most cases, they choose to live there because it has a zero-tax policy so residents pay no income tax.
For many individuals however, reducing tax on their global income by successfully securing tax residence in one jurisdiction and shaking off residence in another is unlikely to be quite as simple as getting on a plane and flying into the new country.
Being tax resident in the UK will automatically result in worldwide income and gains becoming subject to UK tax, no matter where this is held and irrespective of this being paid to the UK. This is the default position, and while non-UK domiciled individuals may claim exemption on unremitted overseas sources, this is not automatic, must be formally claimed, and can impact other allowances. Domicile is usually connected to the country your father considered his permanent home where you were born.
HMRC has definitive tests to determine if someone remains resident in the UK and this is not just about spending fewer than 183 days in the UK. If you have a UK home, and spend more than 30 nights there (without spending a similar number of nights in an overseas home), or spend as few as 16 days in the UK when you continue to have ties or connections here, you could potentially be seen as UK tax resident even if you spend more of your time overseas in any tax year.
When leaving or coming back to the UK, it is possible to split the tax year into UK and overseas parts, but, again, HMRC’s qualifying criteria means this is not a ‘slam dunk’. The legislation must be carefully applied to each individual’s particular circumstances.
Generally, non-UK residence allows you to remove overseas income and gains from the UK tax charge but if you are not also outside the UK for five years, the “Temporary Non Residence Rules” allow HMRC to tax certain sources of income and gains on assets sold that were held prior to leaving the UK.
Liability to UK Capital Gains Tax (CGT) on sales of UK land and property applies, even if you are a non-UK resident and even if the land or property is owned via a company or trust and sales must be reported to HMRC within 30 days.
Inheritance Tax (IHT) is linked to your domicile so you could find yourself fully liable to UK IHT even if you are a non-UK resident and hold no assets in the UK.
It is also important to consider not just domestic tax legislation, but the treaties in place between jurisdictions involved. Taxing rights detailed within these treaties could override domestic tax law.
The OECD’s Common Reporting Standard Initiative (CRS) has resulted in over 100 countries exchanging financial information, including 47 million offshore accounts, worth some $4.9 trillion.
As a result, tax authorities across the world have chosen to introduce severe penalty regimes to those who continue to flout tax reporting requirements so it is more important than ever before to ensure your global tax affairs are reported correctly.
If you are relocating, with the aim of saving tax or otherwise, then given the complexities involved, we would recommend speaking with specialist tax advisors to guide you through the process. At Anderson Anderson & Brown we have extensive experience and specialist global tax expertise to help you and ensure that your tax affairs are correct.