More than ever before, we are citizens of a global village. Easy travel, the internet, work and family can connect us to far flung corners of the world. It is therefore not surprising that many of us are drawn to sunnier lifestyles overseas. But where once living abroad was only for the adventurous, the UK’s current tax environment is prompting an increasing number to consider leaving our shores, particularly as retirement beckons.
The Institute for Public Policy Research predicts that by 2050 more than 3.3m Britons will live outside the UK. For Scotland’s wealth creators, the current trend towards higher rates of income and capital gains tax is a major concern. Over the coming years, you are likely to see a significant increase in your tax burden. With the introduction of 50% income tax and a reduced ability to make pension contributions, you may well be seeing your pension pot dwindling. So is now the time to consider that longed-for move overseas, where the tax system is more benign, ensuring a more comfortable retirement? An already difficult decision is made harder still by recent guidance coming from HMRC.
Moving abroad and becoming not “ordinarily resident” in the UK is not a guarantee that you won’t be taxed by the UK tax man. In February of this year, the Court of Appeal delivered its judgment in the long-running Gaines-Cooper case. The judges ruled that millionaire entrepreneur Robert Gaines-Cooper was liable to pay UK tax on the proceeds of the sale of his business, despite having ‘lived’ in the Seychelles for over 30 years. Although he had spent fewer than 91 days a year on average in the UK, it was deemed that ‘the centre of gravity of his life and interests’ remained in the UK. The case proves that it is far from straightforward to become non-resident from a tax perspective.
‘Whatever you decide for your future, at home or away, longterm tax planning can prove hugely beneficial.’
Mr. Gaines-Cooper relied on the day-count to demonstrate his status, but kept property, had family ties and even club memberships in the UK, which worked against him in the end. In reality, if you want to move abroad and enjoy a low-tax jurisdiction, you have to cut all links with the UK and show a genuine commitment to a new place of residency over a number of years. The Revenue sets out its guidelines – there are no rules – in HMRC6 and these stress the importance of your “pattern” of lifestyle. Just because you live abroad, this does not necessarily prove that you are no longer resident here. Ultimately tax should never dictate your lifestyle but the increased burden is likely to enhance the appeal of a more comfortable retirement abroad. If you do decide to move, careful planning is of paramount importance.
If you own a business, you should be mindful that planning has to start 4-5 years in advance, allowing you to leave the UK and time to defer any business sale. Good advice is essential. Alternatively, if a foreign retirement is not worth the loss of all UK ties, there are measures that an internationally minded family can take. Wealth structuring around assets, such as the use of Family Limited Partnerships to help minimise the impact of inheritance tax or even the simple use of life assurance to cover tax liabilities on death allow greater flexibility should you still want to enjoy life in a warmer climate.
Whatever you decide for your future, at home or away, longterm tax planning can prove hugely beneficial.