Halfway through the UK tax year, UK expats can now take full advantage of split treatment, non residence & dual residency to maximise allowances & minimise taxes
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The beginning of October marks the halfway point of the UK tax year and for expats. That brings with it potential tax savings by utilising both your country of residence's tax free allowance and your country of origin.
Potential strategies are based upon timing your move abroad maximising split year treatment and properly accounting for moveable and immovable assets.
For example, pensions & dividends are moveable and can be taxed abroad without being declared in the UK, while rental income is immovable and must be taxed in the UK which means you can use your UK tax allowance despite living abroad.
SPRING START - AUTUMN HALF
Countries like the UK stayed with the Julian calendar New Year for tax residence. Hong Kong, South Africa and Isle of Man also use a spring new year.
The UK tax year starts 6th of April so that the start of October is the half year when UK tax residence or tax independence day is achieved.
Expats relocating into and living in the UK since April acquire tax residence for the current tax year.
Tax years by country
Expats relocating overseas Living and Working Abroad can confirm UK tax independence or not on a simple residence basis.
Remembering that until a tax return is assessed nothing is confirmed. This may be years later when relocating again or realising property or business assets or lifetime assets.
What influences the tax assessment for any tax year for expats?
Does split year rules apply?
What about residency tax ties ?
What happens when business and family are spread across borders?
Do I need tax returns in more than one country?
11 DAY UK FUDGE
Why is the UK have 5th of April as tax year end?
Other countries like the UK stick to the Julian calendar New Year at Spring and Easter time. This normally should be the spring equinox 25th of March but the UK managed to fudge the issue when they changed calendars to the current Gregorian calendar and added an 11 day tax holiday as compensation for UK tax payers. It has never been changed since then.
India use a spring tax year in line with the Hindu spring holiday period.
RESIDENCE
First you need a residence, a place to stay, a place called home.
This could be owned, leased or with family and friends.
You need to establish a ‘permanent’ home for the year to be a tax resident.
Expats relocating abroad, cannot get a tax residence without a permanent residence in country.
There are different ways to do this costing more or less income or capital.
First you need a home.
A tax definition that its your permanent home may depend on where the family is based.
Sometimes for career, schooling, health or lifestyle reasons a family don’t live together but in different countries.
Where the family lives is a factor in defining permeant home and residence.
If you owned 3 properties in Cyprus and 1 in the UK, your property wealth might be in Cyprus, but the family’s permanent home could be based in the UK. Or vice versa depending upon your family situation.
If you have a home available to you in the UK for for whole of the UK tax year, and live in it for any time period during the year, with or without your family, then it is a residence to consider your tax status and residency in the UK.
BUSINESS
Overseas investors often have moveable income such as dividends, interest and pensions that are taxed in their country of tax residence when they become an expat.
A business trading as a company or personal service company, or as a branch office of a company, in an overseas location offers expats tax independence from their country of residence, without the individuals having to live in that jurisdiction.
The company will need to be registered, even as a branch office, and have a registered service address for the tax residency. Only in certain locations does the company have to have local officers.
Economic activity carried out by an individual in any jurisdiction is a potential tax tie for expats. Generally short business and holiday trips up to 90 days total in any tax year for any jurisdiction are allowable.
Any expat in the UK April to October is tied to tax residency.
As an individual if the work is done in a country of tax residence then liability arises there for income tax and social national insurance.
A company employee working remotely across border must have a sole trader registration in their country of tax residence if no company registration is in place for employment. This may mean registering a UK company with a branch office overseas or creating a wholly owner local company.
Using a company allows flat rate corporation taxes to apply which may be lower than income taxes, and allow dividend income for lower tax.
Working in the UK for 40 days a year is considered a tie for expats.
Working remotely for more than 30 days could incur a personal tax liability in the UK for expats.
DOMICILE
Where you are from has a great bearing on tax status. Non Dom expats in UK, Cyprus, Romania and other countries can pay zero tax on some or all worldwide income, only having liability to local income tax liabilities.
The decision making tree for determining your tax residence
Expats relocating abroad can benefit from non-dom status for 7/15 or 20 years. It’s hard to change is why. We are born with a domicile of origin that is our default tax residence if we don’t have another tax resident.
UK domicile expats need to meet the criteria for independence day non tax residence in any year, and qualify for tax residence in another country.
If you are UK non-dom you could stay tax resident for the whole UK tax year, but only pay tax ion income and gains remitted to the UK.
TIED DOWN
The UK use an automatic non resident test, but you must have been out of the UK for more that 3 full UK tax years. That means for this years 3 years up to the previous April.
If you are not automatically non resident to the then ties count as we have discussed above with residents business economic interests and domicile.
If you have been out of the UK for more than three full tax years even if you've got more than four ties to the UK you could still spend 45 days in the UK and be considered non-tax resident of this year.
To stay in the UK to the October as Non Resident you need to have not been in the UK for the previous three years and have one or less ties to the UK.
Noting that staying in the UK for more than 90 days 182 days in a year and automatically be at least one time for the following tax year.
Staying in the UK for 182 days exception rather than the rule and will stay with you as a tie for at least three tax years ahead.
If you have been tax resident in the UK in any of the previous three years you need to have absolutely no ties to the UK in order to qualify as Non Resident into the first week of October of a UK tax year.
If you have more than four ties the maximum days you can stay to be sure of none residency is 16.
When making an assessment of tax residence the tax man could consider anything related to your residence, family, work, business or the centre of your business and family life.
It's a complex area and to discuss it in more detail contact us at ProACT Partnership. We offer a free Consultant Review to new clients, plus we offer online advice and guidance if you subscribe as a ProACT Retained Client.
TAX FREEDOM - LOOK FORWARD
Tax freedom Independence Day is 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 families and businesses should plan ahead to make sure that they maximise the tax savings to benefit the family and not the taxman.
Book a free review for no obligation impartial advice.
