Being non-resident for tax purposes in the UK can be a significant advantage, particularly if the country where you are going has a low tax rate or ex-pats are exempt from tax. And if you arrive in the UK and are not domiciled here, then there can be tax advantages also. But the rules for claiming non-residence or non-domiciled status are often confusing and frequently changing. Whether you are a UK national moving abroad or a foreign national living in the UK, getting the right tax advice is crucial. You will need to be aware of whether you need to complete a UK tax return and what has to be declared on it. In addition, you will need to know what expenses can legitimately be claimed against your taxable income, and how any foreign earnings are dealt with.
Being based in London, we find ourselves assisting taxpayers in these areas from three main backgrounds:
1. UK taxpayers leaving the UK in order to work abroad – from ex-military personnel working for security companies in Iraq and Afghanistan, to missionaries teaching in theological colleges in Africa
2. Overseas workers arriving in the UK on a short-term temporary contract who are entitled to claim a range of expenses against their UK income
3. Non UK-domiciled workers arriving in the UK, but with foreign income to declare in addition to UK earnings, and possibly with tax relief to claim for overseas workdays.
In order to order your tax affairs efficiently, there are three key concepts you need to understand:
Residence for tax purposes (not to be confused with permission to remain in the UK) is a matter of fact. If you reside in the UK for an average of 91 days per tax year, then you are resident in the UK. In addition if you are in the UK for 183 days in any one tax year then you are always classed as resident. But you cannot be non-resident unless you fulfil the rules for an entire tax year. A whole year away from 1 June to 31st May will not make you non-resident. By the way, a day counts if you are in the UK at midnight on that day.
Domicile is usually determined by where you are born but can be because of your father’s nationality. Most people retain their domicile of birth unless they deliberately break all connections with that country. If you are resident but not domiciled in the UK then you can claim the remittance basis of taxation for overseas income. In other words, you are only taxed on overseas income that is brought into the UK. But you will lose your personal tax allowance if your overseas income is more than £2,000 in a tax year and you can only claim the remittance basis for the first seven years of residence. (It’s slightly more complicated if you leave and return during those years).
Ordinary Residence is based on the taxpayer’s intention when they arrive in the UK, usually determined by how they complete form P85 provided by HMRC. If your intention is to leave before three years are up, and you are not domiciled in the UK, then you may be Not Ordinarily Resident for tax purposes and able to claim tax relief for overseas workdays provided this proportion of your income remains offshore.
You will need to produce the correct paperwork for your situation and most likely complete and submit a self-assessment tax return. But please do get professional help as the rules are complex and experience is essential in order to minimise your tax liability and avoid a tax investigation.
Ian Marlow runs HFM, a London tax and accounting business serving clients both resident in, and working outside, the UK. For more detailed tax information and access to their excellent free monthly tax newsletter, go to the HFM website => http://www.hfmtax.co.uk .
Article Source: Non-Residence and Domicile Tax Issues
