How ex-pats could still be hit by a HMRC tax bill

  • Understand the complexities of a client's tax position if leaving the UK
  • To appreciate the siginificance of one's tax liabilities despite being resident abroad
  • To learn about the importance of domicile
How ex-pats could still be hit by a HMRC tax bill

At this difficult time there will be plenty of people who are at least considering leaving the UK to become ex-pats.

Among the many imagined advantages of upping sticks will be the thought of escaping the merciless grip of HM Revenue & Customs (HMRC). No more eye-bulging tax demands, no more ‘Big Brother’ in a brown envelope.

Unfortunately, and inevitably, the real world is more complicated than the dream.

A failure to be unromantic and to plan with the UK taxman in mind may result in a rapid and queasy reminder that your tax liabilities to this country continue – despite having left these shores far behind.

Key points

  • Emigrating to Europe to avoid the taxman post-Brexit may not be successful.
  • It is hard for a UK resident to become a non-UK resident.
  • Even in cases where there is no UK tax charge, there is an obligation to file returns with HMRC.

Cessation of UK tax residence 

Remarkably, in the past it was not always easy for people to know when they had ceased to be resident in the UK for tax purposes.

There are plenty of stories of people who claimed to have left the UK tax net, only for the courts to decide that this was not the case and for hefty tax charges to be imposed. The problem was the lack of clarity in British law as to when individuals were considered to have broken their ties to this country for tax purposes.  

To address that difficulty, the government introduced a statutory residence test in the UK – which has applied since 6 April 2013.

The test is complicated, but it is now possible to conclude whether an individual is British resident for a UK tax year. The danger remains, however, that people who leave Britain with the intention of becoming a non-UK tax resident may still subsequently discover that this has not been achieved once the test has been applied to the facts.  

The test, which is of Byzantine complexity, concerns itself with a person’s days of presence in the UK compared with days spent in non-UK countries, and with work patterns, availability of accommodation here, UK resident family – and much else.

As a rule of thumb, it is usually harder for someone who has been UK tax resident for many years to become non-UK resident. This is especially so if they want to continue to make frequent visits to the UK following their departure from the country.

There is also a trap for people who successfully manage to cease UK tax residence for a tax year, but due to unforeseen reasons have to move back to the UK within five years of departure. The trap applies to a temporary period of absence from the UK where an individual receives certain sources of income or realises capital gains on assets they owned before leaving the UK.

Ordinarily there might have been no UK tax to pay while non-UK resident, but the taxman could retrospectively collect tax on the funds received during the period of absence. This can be disastrous for the unaware who may have spent all the funds before discovering they have a HMRC tax bill.