Tax on Expatriates

Insights into what is involved in buying, selling & living in Portugal

Thousands of British people, who have moved or retired abroad, could be chased for tax going back six years following a recent court ruling. The landmark decision changed the way the Inland Revenue & Customs calculates whether you are deemed to be resident in Britain and therefore whether you must pay UK tax on your worldwide income and gains.

If you continue to visit Britain for an average of more than 90 days a year over four years, you are liable to UK tax on your global income and gains. If you fall below the 90 day limit however, local rates will apply. Even then, you will still have to pay UK tax if you retain any British assets, including bank accounts, investments and buy-to-Iets.

Until now, the taxman has excluded the days you arrive and leave, but in the recent ruling against Robert Gaines-Cooper, a businessman who said he was a Seychelles resident, the court decided these extra days should be taken into account. This significantly increased the amount of time he spent in Britain – from 79 to 128 days in one tax year alone.

In effect, it means that people, who live abroad, but visit Britain regularly, will be able to spend fewer days in this country before they fall foul of the taxman.

This ruling will affect not only millionaires and business people, but ordinary middle-class families who have moved or retired abroad, but who return to Britain regularly for domestic reasons, such as visiting grandchildren.

Great care should be taken when calculating how many days are spent in the UK and the onus is on the individual to prove to the tax man that they are not resident. More than ever, it is now highly advisable to keep all boat and plane tickets and boarding passes as proof of your visits. In addition, keep a diary of days spent in Britain.

For many expatriates, the initial reason for moving may have been the climate or their health, rather than tax, but because they have significant assets in offshore accounts, perhaps from the sale of a British property, they must be careful to spend fewer than 90 days a year in Britain so they are not subject to UK tax, although they could, of course, be subject to local taxes.

It seems that the ruling was part of a wider clampdown on people who retire or work abroad. The chancellor is seeking 3.5 billion pounds sterling from taxpayers to plug a hole in the public accounts, and the Revenue has identified overseas assets as an easy target.

It is probing the estates of people who owned property abroad for example, to make sure their families have paid sufficient inheritance tax (IHT). It is also looking more closely at all businessmen, not just millionaires, who quite legitimately work abroad most of the time, but who regularly return to Britain for meetings and to see relatives.

About one million people have retired abroad according to Lombard Street Research and this could rise to 1.3 million by 2025. Another 280,000 households own a second property abroad and many intend to settle there when they retire. One in five British adults (10 million adults) is considering fleeing Britain’s rising taxes and cost of living.

Even if you are no longer a British resident, it is extremely difficult to escape IHT.

Anyone domiciled in Britain must pay UK tax at 40 per cent above the threshold of 285,000 pounds sterling. This liability extends to worldwide assets including Portuguese property. So even though Portuguese inheritance tax has been abolished for assets passing to immediate family, you may not escape the UK tax net.

Individuals acquire a domicile of origin at birth and this is normally the domicile of the father. It is hard to change this as you must sever all ties with the UK. This means closing all British bank accounts, selling your UK assets and even organising your funeral abroad.

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