This week we celebrate the 4th of July Independence Day for the USA as a colony of the UK and as taxpayers to the UK.

4th of July also denotes the first day of tax freedom for expats relocating on, or before, 1st of January of the current year.

If you leave your home country on the 1st January and stay abroad until the 4th of July, then you will have exceeded 183 days in your new country.

The 4th July is tax freedom day when you can become non-resident to your home country and tax resident in your new country, meaning potential tax savings.

This applies to countries with a calendar tax year like the USA and Cyprus. However, different countries operate different tax years and the UK follows the old Julian calendar.

History of calendars

The history of the UK tax year is actually quite interesting.

It all begins in 45 BC when having taken control of Rome, Julius Caesar realised that the system had become so bad that the average citizen did not know the date. A period known as the years of confusion.

The Roman Emperor addressed the inaccuracies of the Roman calendar by creating the Julian calendar which contained 365 days with a 366 day leap year every 4 years.

This Julian calendar remained the dominant calendar of the Western world. However, over 1600 years the calendar had a slight misalignment with the time it took for the Earth to travel around the Sun (the Julian calendar is 13 days behind the current date) and so Pope Gregory VIII created what became known as the Gregorian calendar in 1582 by reducing the average year from 365.25 days to 365.2425 days.

This minor amendment to the Julian calendar was subsequently adopted across the Catholic world. Yet, having removed them self from Rome in the original Brexit, England was slow to adopt the improved calendar.

In fact it wasn’t until 1752 that Britain adopted the Gregorian calendar.

The UK tax year

In Britain in the 18th Century the New Year began 25 March, not 1 January as we know now, as per the church calendar and as such the tax year began from then.

It is due to the conversion from the Julian to Gregorian calendars that Britain essentially added 11 days to the calendar and subsequently lost out on 11 days tax.

The government rectified this in September 1752 by adding 11 days to the tax year with the result being that the tax year ended on 5 April.

The UK tax year has started from 6 April ever since.

In short, the UK tax year runs on the old British calendar year plus 11 days to make up the switch to the Gregorian calendar.

This offers an opportunity for expats moving between the UK and countries with differing tax years.

Independent but Tax Resident

While independence they may bring you freedom from your old tax residence every individual and business around the world has to retain a tax residency around the world along with their tax returns. Without this you cannot maintain bank accounts, investment savings or business operations.

When we locating a board timing is important in determining your tax residency residency in any specific tax year.

As we see when there is a conflict between the tax years of two countries there is a need to consider that your income and gains could be reportable in one or two tax returns depending upon the timing of the income or gain,

the timing of your relocation and qualification as tax resident, the tax rules within any double taxation treaty.

Freedom to Look Forward

Tax freedom Independence Day on the 4th of July is a time to celebrate and also a time to start preparing for the tax return and any payments due for the current year now more than halfway through.

Consider tax residence, dual residency, non residency and any split year rules that could apply.

Expat family and business should plan ahead to make sure that they maximise the tax savings to benefit the family and not the taxman.

Watch our recent webinar on the 4th of July Tax Independence Day at all YouTube channel ProACT Partnership

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