For those persons looking to leave the UK - often HNW individuals concerned about rising taxes - there are a number of tax considerations to consider.

Recently published data has revealed that the UK is expected to see a net outflow of 3,200 high net worth individuals in 2023. The UK’s anticipated flight of such people doubled that of last year, when it saw a net exodus of 1,600 millionaires. This news service has pointed to how, for example, threats to the non-domiciled status from a potential Labour government is having an effect; Brexit may have encouraged some wealthy people to re-settle in Europe. To discuss such issues and how those leaving the UK can mitigate any tax hit is Lara Mardell (pictured), legal director at law firm BDB Pitmans. 

The editors are pleased to share these views and they invite responses. The usual editorial disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com

The UK will have a net outflow of 3,200 high net worth individuals in 2023, according to the Henley Private Wealth Migration report, published by Henley & Partners, in June. This is double the figure in 2022, and more than the 3,000 predicted net loss for Russia this year. 
 
If any of your clients are among them, we set out below some considerations for them to bear in mind to ensure that they get their UK tax affairs in order.     
 
First: know when your UK residence ceases 
Essential to any planning is for clients to ensure that they become non-resident for UK tax purposes, and to know exactly when this is.  
 
UK tax residence is determined by the “Statutory Residence Test” (SRT). A person’s UK tax residence status for a particular tax year depends on how long they have been here, on certain “ties” they have to the UK, and how many days they spend here. Generally, the more ties an individual has the fewer days they can spend in the UK without becoming a UK resident. 
 
There is a common misperception that if an individual spends 182 days or less in the UK in a tax year they must be a non-UK resident, but in practice individuals who have been resident in the UK long term usually need to restrict their days to either 90 or 119. In some cases the permitted day count is as low as 15. 
 
Individuals are usually resident or non-resident under the SRT for a full tax year. This means that an individual will often cease to be a UK resident after they have physically left, at the start of the next tax year on the following 6 April.     
 
In some cases, ‘split year’ treatment is available, so the individual will be UK resident in the portion of the tax year prior to leaving and non-UK resident afterwards. However, this only applies in limited circumstances, and even then not for all UK tax purposes.    
 
What if you become resident somewhere else? 
A person leaving the UK is probably going to settle somewhere else. If there is an overlap between their UK residency and their residency in the new place, then there may be a tax treaty between the UK and the new place which determines which place they will be treated as tax resident (though “treaty residence” does not trump UK residence for all tax purposes).   
 
Investments
If someone is UK resident they generally pay UK income tax on their worldwide income. Individuals who are non-UK resident pay on certain types of UK source income only. Dividends from UK companies, for example, are disregarded, but rental income is taxable.  
 
In practice therefore there may be no immediate need to sell UK assets and reinvest elsewhere (though this may be helpful in the long term for IHT purposes as discussed below). 
 
If the client is selling or gifting assets which stand at a gain it is better from a UK tax position to do so after they have ceased to be UK resident (another reason for knowing when this is). UK residents pay capital gains tax (CGT) on gains realised on UK assets (and usually on non-UK assets as well). Non-UK residents do not generally pay CGT on gains, even on sales or gifts or assets in the UK.   
 
There are exceptions to this general rule. One relates to UK real estate (see below). The other is that if the individual becomes UK resident again within five years then any gains realised in the non-resident years become chargeable. The client may need to watch out for this.   
 
What about your UK home? 
A big question for the client will be what to do with their UK home.   
 
From a UK tax perspective, selling your home while still UK resident or very soon afterwards can work very well. Retaining a home in the UK is a tie (known as the “accommodation tie”) for the purposes of the SRT. This usually means that the client can spend fewer days here without becoming UK resident (though will not make any difference if they have some other available accommodation). The home is not a tie if they rent it out, but then the rental income will be within the scope of UK income tax.  
 
Another advantage of selling a home sooner rather than later is CGT. Unlike on most assets, non-UK residents pay CGT on gains on sales of UK real estate (though only on gains since April 2015). UK residents do too, but UK residents are likely to have the benefit of “principal residence relief” on the sale of their home, which provides full relief from CGT. Non-UK residents can also qualify for principal residence relief, though after nine months of ceasing to live in the property this relief usually starts to be eroded.   
 
Finally, there is IHT. A UK home is likely to be a high value UK asset, within the scope of IHT. This may be a concern, particularly for older clients.  
 
Realistically, though, if a client is settled in the UK, selling their home too soon may be a step too far. In most cases they will be able to hold onto it for a while, without giving rise to too much of a tax bill. And when it comes to their home, clients may not want the tax tail to wag the life dog.    
 
Living abroad long term
If the client decides to stay permanently in the new country (or return to their country of origin) this gives rise to another UK tax advantage – non-UK domiciled status. 
 
An advantage of an individual being non-UK domiciled is that the individual’s assets in the UK will be within the scope of IHT, but those outside the UK will not be. For such individuals this will be another reason to reduce their asset base in the UK. By contrast, if an individual is UK domiciled, their assets worldwide are within the scope of IHT.  
 
Some clients, generally those who are not from the UK to begin with and have not been here too many years, will be non-UK domiciled anyway. Moving outside the UK will prevent them ever becoming UK domiciled. Others will need to be out of the UK for at least three years to become non-UK domiciled, and others will need to stay away for many more years to be able to rely on non-domiciled status. 
 
Like residence, domicile is highly fact specific and the client should seek advice on their domicile and steps that can be taken to help ensure non-domiciled status.  
 
What about tax in the new place? 
Of course relocating to a new place probably saves UK tax – but there is likely to be tax in the new place of residence. Clients will need to consult local advisors. Where assets are in a third place, tax may also apply there. 
 
Sometimes tax arises in more than one place, on the same asset or income. In such cases, the client needs look to tax treaties. One of the main goals of tax treaties is to prevent double taxation, though they do not always work perfectly. The UK’s domestic tax rules sometimes also give a credit for foreign tax paid. 
 
The key factor underpinning any planning for a client is knowing when their UK residence will cease. They need professional advice in good time, ideally in the tax year prior to leaving, taking into account not just their tax position but also their life goals.