The long arm of HMRC?
The implications of the outcome following the Brexit referendum are still being finalised. However global financial institutions such as Goldman Sachs, Morgan Stanley, Deutsche Bank and others have said they will relocate workers to rival financial centres in Europe after March 2019. A survey by Reuters indicated up to 5,000 financial jobs could be moved, depending on the final terms agreed by the Brexit negotiators.
It is worth pointing out that for the individuals thinking about relocating, the long arm of HMRC will make their finances more complicated than they had anticipated. Moving country is a huge decision. Quality of life, employment opportunities, climate and a good education system, could all be factors in this decision, but tax implications may also be significant.
There is widespread confusion about UK tax obligations among Britons thinking of moving abroad. It is also fair to say it may not be the ideal choice of the individual involved to relocate and for many, it will be their first stint of working outside of the UK.
A survey was recently taken of 150 British expats across the world to gain insight into the most common misunderstandings about the UK tax laws. Nearly three-quarters of those surveyed said they wrongly assumed they would no longer be UK domiciled after moving, which would free them from taxes levied by the HMRC such as UK inheritance tax, which at 40% is the 4th highest in the world, according to policy adviser the Tax Foundation
Many people believe leaving the UK will break the domicile position and therefore negate UK tax. Unfortunately, those who move abroad for work along with those who move by choice need to remember that just because they have crossed the border it is not a clean break from the UK tax system. For those domiciled, the tax code can also catch out those who seek to claim non-residency while on secondment to an overseas office, for example. Non-residents have to pay tax on any UK income, such as rental income from a British property while residency could trigger HMRC taxes on worldwide earnings and capital gains.
A managing director at a US Investment Bank who moved to Milan from London in Spring 2018 said many of his peers believe they can keep their families in London and return on the weekend. Overstaying the permitted tax year allowance of 90 days or working from the UK on more than 30 of these days could trigger residency and a hefty bill. Travel between the UK and the new country of residence has to be carefully managed and logged in case HMRC request evidence to support the individuals new non-resident status.
Losing domiciled status (which has roots back to 1799) is very difficult to achieve. It involves individuals to sever all links and to pledge never to return to live in Britain among other strict criteria. People who were born in the United Kingdom are generally deemed domiciled and as of April 2017 so are people resident in the UK for at least 15 of the last 20 tax years.
In April this year, new non domicile rules came into force which has pared back tax perks offered to people whose domicile is outside the UK imposing new limits on their ability to keep offshore income out of Britain’s tax net.
Permanent non-dom status will be abolished for anyone living in Britain for a least 15 of the past 20 years. Non-dom status for Britons who return to the UK but claim to have a permanent home abroad will also be removed.
These measures are the biggest tax changes to the tax rules since their introduction in 1914. They have been introduced to tackle what the government has described as fundamental unfairness in the non-dom regime. HMRC estimates the measures will generate an additional £995m in extra revenue.
A prominent example of a returning non-dom is Stuart Gulliver, Chief Executive of HSBC banking group. Mr Gulliver was born and educated in the UK and acquired a tax domicile of Hong Kong after he moved there with HSBC in 1980. This allowed him to keep his offshore income, including from a confidential Panama company, out of the British tax net. However, he recently lost a High Court battle to stop HMRC investigating how he has kept a tax domicile in Hong Kong despite working in Britain for 13 years.
The survey of expats also highlighted confusion in other areas of financial planning. Half the respondents admitted they had no idea whether their Wills would be legally recognised outside Britain. In fact, people may require a UK Will and Power of Attorney for their UK assets and then a separate one covering their assets in the country they live in. The Wills need to acknowledge each other to avoid potentially superseding each other.
Additionally, certain life insurance policies may not be effective in other countries. The terms may not be altered easily so portability can be an issue.
Finally, bringing money back to the UK either for expenses or when someone returns home for good will have also have tax implications. Efficient financial planning will make a significant difference to your financial situation. Ensure you speak to an experienced and impartial professional for peace of mind. Don’t put it off. Contact us now for advice.