Status rules are tightening for expats, finds Ali Hussain

Wealthy people planning to move abroad for part of the year to beat the 50% top rate of tax have been dealt a blow by Revenue guidance on becoming non-resident.

People are generally deemed to be non-resident if they spend fewer than 90 days a year in Britain. Once you have been non-resident for more than three years you do not pay any UK income tax on overseas income.

If you are non-resident for more than five years you do not pay any capital gains tax on your UK or overseas gains.

Non-resident status used to be granted if the individual spent no more than 90 days a year in the UK after moving abroad.

However, guidance from HM Revenue and Customs (HMRC) in April indicated that nonresidents may have to pay full UK tax if their lifestyles suggest they still have strong associations with Britain — such as membership of a UK gentleman’s or sports club — even if they meet the 90-day test.

Emma Loveday, private client partner at Wedlake Bell, a City law firm, said: “Merely counting days is just not enough to maintain non-residency status. HMRC will be considering many other factors and it will be trying to assess what the intention of the individual is when applying for non-residency and whether their lifestyle indicates that they have left the UK and become non-resident.”

Loveday says this summer will represent the first big challenge to the normal practices of non-residents. Many expatriate Britons traditionally travel to Britain in the summer to escape the intense heat of many of their resident countries and attend society events such as Royal Ascot and the Henley regatta.

To qualify for non-residence status, you have to prove to the taxman that you have had a significant break in your lifestyle when moving abroad. HMRC has not specified in detail what it will consider when assessing residency but Loveday says there are a number of things you should consider.

Retaining a property in the UK could be used against your non-resident claim, for example, especially if it is occupied by members of your family.

Also, if you visit the UK regularly to carry out UK-based work you are likely to be considered a UK resident, especially if the work is your main income.

Maintaining strong social ties —membership of a club or society, for example — might be used by HMRC to prove that you have not sufficiently changed your lifestyle when you left the country, according to Loveday.

Sending your child to a British boarding school, staying on an electoral roll or having post sent to your UK address could also count against you.

Loveday said: “There is currently no statutory definition that sets out clearly and concisely what activities make an individual a non-resident.”

A dispute with HMRC over whether or not arrival and departure dates should be included in the 90-day limit when considering non-residency are to be investigated by a judicial review this month

Published in The Sunday Times, 14 June 2009