Retirement Planner Magazine Outline topic list – Tax/Trust Planning for expats.

Residence, Ordinary residence and Domicile

Broadly speaking, you are domiciled in the country where you have your permanent home. Domicile is distinct from nationality or residence. You can only have one domicile at any given time.

Becoming non-resident

Normally if you leave the UK permanently or for 3 years or more or to work abroad full-time, you will become not resident and not ordinarily resident in the UK if:

your absence from the UK covers a complete tax year (i.e. 6 April to 5 April), and
you spend less than 183 days in the UK during the tax year, and
your visits to the UK do not average 91 days or more a tax year over a maximum of 4 years.
(For visits to the UK, days of arrival and departure are not normally counted as days spent in the UK.)

Becoming non-domiciled - Domicile is relevant to UK taxation, in particular for inheritance tax (IHT) purposes. A UK-domiciled individual is liable to IHT on worldwide assets; a non-domiciled individual is only liable on UK-situated assets. Becoming non-resident does not change your domicile status, unlike another rule which says that seventeen years of residence in the UK can result in a deemed domicile for IHT.

How to avoid UK income tax Avoiding UK tax on your employment income – If you leave the UK to work overseas for more than a complete UK tax year, you may be able to avoid UK tax on any employment income you receive whilst you are working overseas (even if this is paid in the UK). Your job must be full time and there are restrictions on the number of days you can spend back in the UK whilst you are working overseas, although these are fairly generous. However, if your UK income exceeds your personal allowance you may wish to consider other ways of avoiding UK tax. One solution is to hold your investments offshore, where you can build up funds free of UK tax. And it’s usually possible to bring your offshore funds into the UK when you return without incurring a UK tax charge.

If you are working overseas for several years, you may also be able to avoid UK capital gains tax if you sell UK assets whilst you are away. These rules are complex and bespoke advice should always be obtained in this area to avoid unnecessary tax bills.

How to avoid - UK Capital Gains Tax, last year The Inland Revenue moved to close a loophole that allowed some wealthy investors to take up 'temporary non-resident' status in certain European countries, thereby avoiding paying capital gains tax in Britain.

How to avoid - UK Inheritance Tax - Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are situated. If you are domiciled abroad, inheritance tax applies only to your UK assets. However, if you are domiciled abroad there is no charge on excluded assets and we may remove certain other types of UK assets from the tax charge

Making use of double tax relief - Double tax relief is the mechanism by which relief is given against UK taxes for foreign taxes paid on the same income. Schemes notified to the Inland Revenue included arrangements to obtain tax deductions for annual payments made in return for the right to receive dividends.
It considers these to be contrived and measures have therefore been introduced to remove the tax deduction for a payment linked to the receipt or right to receive dividends, and to prevent relief for more foreign tax than has actually been paid.

Tax benefits offshore trusts - The chancellor could raise almost £500m a year by closing a key offshore property tax loophole -- ten times as much as Budget figures suggest. The abolition of ‘seeding relief’, which allowed property companies and individuals to put properties into offshore unit trusts as a way of avoiding stamp duty of up to 4%, is predicted to generate £50m a year for the government, according to figures released with the Budget statement

Whether you pay tax to the UK or your new country of residence depends on the Double Tax Treaties. Essentially, a double taxation treaty is an agreement between two countries designed to avoid the risk of an individual being taxed on the same income by both countries. These treaties affect individuals, or companies, doing regular business in two countries, which is why they are of particular interest to expatriates. Once two countries have established a double taxation treaty, expats will not have to pay tax on the same income twice over. When an expat is moving between two countries and earning an income in one which is then drawn on in the other, there are various tax rules laid down which establish the sole country of residence for the purposes of applying for the benefits of the treaty. Expats should seek the assistance of a tax expert to establish whether a treaty exists and how to apply for its exemption.

Offshore company/trust owning overseas property