Changing residence and domicile

Residence and domicile rules: to notify HMRC that you intend to, or have already, become a non-resident for tax purposes, you need to fill in a P85 form. Through this form, HMRC collect information to help them determine whether you are taxed as a non-resident going forward.

Since April 2013, in order to become a non-resident taxpayer in the UK for tax purposes you have to satisfy the Statutory Residence Test (SRT).

Anybody who leaves the UK to work full-time abroad with a full-time contract of employment is regarded as automatically non-resident, if they are present in the UK for fewer than 91 days and work in the UK for fewer than 31 days during that year (a work day being any day in which an individual works for more than three hours).

If you have been settled in the UK for some years and leave, you will become automatically non-resident if you spend less than 16 days in the UK during the tax year. If you spend more time than this in the UK you will need to reduce your ties with the UK in order to become non-resident. Ties prescribed by the SRT include family, accommodation and employment.

Should you leave mid-way through the tax year, you may qualify for split year treatment, which enables you to be treated as non-resident from the date of your departure. The legislation sets out eight sets of circumstances where an individual might meet the criteria for split treatment. If split year treatment applies then, in most circumstances, income and gains from the non-UK part of the year will not be taxed.

Each country has its own residence rules. You may be considered a tax resident of the UK in the tax year you arrive if you spend 183 days in that tax year. In some cases, residence depends on the number of ties you have, coupled with the time that you spend in the UK.

When you first arrive in the UK, you may still also be regarded as a tax resident of the country you left. You may be taxed on the same income and capital gains in the UK and your former country, but there are provisions of the UK tax code that give unilateral relief from double taxation and further relief may be available, as long as there is a double taxation agreement between the two countries.

Anti-avoidance provisions prevent people avoiding UK tax by becoming non-resident for relatively short periods of time. Those affected will face a tax charge on certain types of capital gains and on certain types of income on their return. You will be temporarily non-resident if you were resident in the UK in at least four out of the seven tax years preceding the year of departure and you remain non-resident for five years or less. Unless split year treatment applies, this means that the individual must remain UK non-resident for six years in order to escape the anti-avoidance provisions.

If you own investments on which you have lost money, you could consider disposing of them before becoming a non-resident for tax purposes. Losses on these assets can be offset against any tax liability on future gains. This is only possible, however, if the losses are realised while you are liable to CGT as a UK tax resident.

If you cash in investments acquired before departure, but after becoming a non-resident, any gains realised while you are a non-resident will be subject to CGT if you become a UK tax resident again within that five-year period.

If you are living abroad permanently when you die, you may not have escaped the clutches of HMRC for IHT purposes. This is because you could be non-resident but still UK domiciled for IHT, which would mean your worldwide estate would be liable to IHT. However, if you are no longer domiciled, nor deemed domiciled, for IHT purposes on your death, then only your UK situs assets will be subject to IHT.

An individual may only have his or her domicile in one country at a time under English law and cannot ever be without a domicile. As we have seen, it is possible to acquire a domicile of choice, which displaces a domicile of origin, although it requires a high standard of proof. An individual should cut all physical ties to the UK including giving up employment, selling property, resigning from directorships, memberships of UK organisations, closing bank accounts and restricting visits. In their place the individual should maximise ties and links with the new country. Having moved to the new country, they should make their permanent home there and taking up citizenship (if available) and building up business, personal and social ties there.

Even if you manage to acquire a domicile of choice in the new country, you will still be liable for IHT on your worldwide assets for three calendar years from the point at which the new domicile of choice is acquired (which may not be immediately on moving there) because you will still be deemed domiciled.