HMRC tightening up on 90-day tax rule for those working overseas
Individuals may have to break all ties with Britain to qualify for non-resident status
One of the benefits of living or working abroad is that it can often mean you pay less tax.
HM Revenue and Customs (HMRC) has recently updated its guidance, however, on how to determine whether someone is non-UK resident and is looking far more closely at people who claim non-UK resident status.
When deciding whether a person is non-UK resident, HMRC is now considering the person’s connection to the UK, looking for signs that they have severed all ties with the country.
Recent HMRC practice strongly indicates that, to become a non-UK resident, it is no longer sufficient simply to spend less than an average of 90 days per tax year in the UK calculated over a period of four years.
To become non-UK resident, a person must now show that they are “breaking away from the UK” indefinitely and not merely as a temporary measure.
For example, to demonstrate an intention to leave the UK and move abroad for a “settled” purpose, a person may have to sell their UK home, car and cancel their memberships of social clubs.
One crumb of comfort comes from working abroad.
Provided a person physically leaves the UK to work abroad under a contract of employment for at least one UK tax year, and adheres to the 90-days rule, the non-UK residence status should be applicable under the right circumstances.
Otherwise, in the absence of a legal definition of “resident” in the UK, we depend on an ever-expanding body of case law and HMRC guidelines to clarify the circumstances when a person can become non-UK resident.
HMRC’s latest guidelines (HMRC6) state explicitly that residency status will not be determined by the 90-day presence in the UK measure alone.
These new guidelines came into effect on April 6 this year and are likely to affect individuals who may have moved abroad but still have ties with the UK. If HMRC’s view prevails unchallenged it may be virtually impossible for someone to become non-UK resident without taking the rest of their family with them, regardless of the disruption to other people’s careers or children’s education and social needs.
This seems wrong on so many levels it is difficult to know where to begin.
The UK seems to be edging closer to the American system of taxing its passport-holding citizens regardless of where they live in the world.
The European Court of Justice might have something to say about that one day. In the meantime, however, it has become more difficult to let clients know what they need to do to achieve or maintain their non-resident status.
“Get out and never come back” just doesn’t sound like the sort of advice they’re looking for.