When people choose a leave a country – sometimes to get away from oppressive levels of tax – it is a mistake to assume that they can easily disentangle themselves from their erstwhile jurisdiction. This article – part of a series – examines the challenges.

This news service is running a series of four articles from law firm Taylor Wessing on matters relevant to private clients and their advisors. The editors are pleased to share this content. The editors don’t necessarily endorse all views of guest writers. The usual disclaimers apply. Email tom.burroughes@wealthbriefing.com

The authors of this article are Ben Lister, partner, Gabriela Hristova, associate.
 

In any relocation project, tax is often a main, but not the only relevant factor. In the planning stage we always advise clients to consider a whole array of subjects, including: the characteristics of the tax regime in their new country of residence (how will their wealth be taxed in that new country?); immigration restrictions (can they really move there?); living standards and security (will you feel safe there?); climate; schooling system (if relevant), etc. 

In cases where stopping being UK tax resident is a main motivation for the move, the success of the move hinges largely on breaking their UK tax residency effectively. 

An individual's UK tax residence status for income tax and capital gains tax purposes is determined by the UK's statutory residence rules. These rules determine whether an individual is automatically not UK tax resident or automatically UK tax resident, or whether they are UK tax resident by virtue of their ties to the UK and the number of days spent in the UK in a given tax year. The longer someone has lived in the UK and the more ties they have with the country, the harder it will be to become non-UK resident. 

There are many helpful summaries available online but a particular danger is relying on summaries and online tools, or assuming that simply by not spending more than a certain number of days in the UK, you can ensure that you are not UK tax resident. 

It is always necessary to obtain advice on which you can rely.  We have set out below seven traps that can sometimes be overlooked and lead to individuals accidentally remaining UK-resident. 

1. Assuming that the residence tests are all about day counting (and UK ties) – Day counting and UK ties are often instrumental in determining whether an individual is UK resident or not, but the fact that, for example, an individual is working full time in the UK or overseas or the individual has UK homes can lead to automatic UK residence or non-UK residence. It is essential that the tests are reviewed fully, and advice is taken, to avoid the individual inadvertently remaining UK tax resident.  

2. Having a UK home but not having an overseas home – If an individual's UK home remains their only home worldwide in the first 30 days of the first tax year in which the individual is seeking to break residence with the UK, the individual can inadvertently be UK resident if they are present at that UK home for 30 days during that UK tax year. The rule of thumb is to ensure that the individual has a "home" outside the UK before the start of the first intended UK tax year of non-residency. Depending on timing of the move, this can be a particular trap for those who plan to stay in hotels initially and figure out where to live later.

3. Being automatically UK-resident because of "working full time in the UK" – Another potential trap, which might make an individual automatically resident in the UK, after they have moved, is if they maintain their UK full-time employment.To ensure that they are no longer treated as working full time in the UK, an individual should have a "significant break" in the exercise of their duties. A "significant break" is defined as generally doing no more than three hours' work in the UK on any day during the first 31 days of the tax year in which they are intending on being non-UK resident (ignoring days when the person is on sick leave, annual leave or parenting leave). 

4. Accidentally having an "accommodation" tie when staying at a hotel or with friends – One of the UK "ties" is accommodation. The word "accommodation" has a very wide meaning, which means that even hotels in some circumstances could constitute "accommodation." Therefore, even where the individual has (prior to leaving) sold their UK home, they might still be considered to have available accommodation in the UK, which would ultimately decrease the number of days they are allowed to spend in the UK without becoming UK tax resident.

5. Having a "work" tie with the UK – To the surprise of many executives and entrepreneurs, doing more than three hours' work on a day in the UK on at least 40 days in a tax year counts as a "work" tie. For individuals who frequently travel on business this can prove to be a real practical issue. Time spent travelling (for example, to and from the airport) can count as work, as can reading and responding to emails. 

6. Inadvertently having UK resident "family" – If an individual's spouse or civil partner or minor children are resident in the UK, they will also have a "family" tie. What is less well-known is that an individual also has a family tie where they are unmarried but living with their partner, as husband and wife – a test which draws on social security rules and can be tricky to navigate, but, if missed, can impact on the maximum number of days an individual can spend in the UK without being UK tax resident. 

7. Coming back to the UK again and being treated as only temporarily non-resident – An individual can lose some or all of the benefits of being non-UK tax resident if they become UK tax resident again too soon after leaving. This only applies where the individual has been UK tax resident for four of the seven tax years before the tax year in which the individual becomes non-UK resident. 

However, in such cases, where the individual becomes UK tax resident again within five years, gains, and certain dividends they received while non-UK tax resident can be taxed in the UK in the year of resuming UK tax residence. The rule of thumb is to ensure that someone leaving the UK remains non-UK resident for six complete tax years. 

Regardless of the reason for any relocation, making sure that an individual does not accidentally remain UK tax resident should always be a key consideration, and the nuances of some of the rules makes formal pre-departure UK advice an essential part of the move.