Last March we introduced you to the fact that HMRC was considering changing its rules relating to residency for expatriates. In our article ‘Statutory Definition of Residence Theoretically Good News for Expats’, we explained how HM Revenue and Customs was to consider the introduction of a legally defined set of rules to determine whether a Briton was an expatriate non-resident for tax purposes or not.
As the residency guidelines stand to this day, there is no legally binding set of rules to determine who is and who is not a UK non-resident for tax purposes, i.e., all the guidelines in place are open to interpretation - as the Robert Gains-Cooper case clearly highlighted to expats everywhere. However, as soon as the consultation phase for the statutory test began last year, it became clearer to everyone that perhaps the restrictions of the new statutory test would be detrimental to many expats’ tax status.
As we touched upon in our article ‘Will You be Badly Affected by Changes to UK Tax Residency Rules?’ HMRC has been considering slashing the number of days a Briton can spend in the UK on holiday or business if they want to be regarded as non-resident for tax purposes. What’s more, they are planning on being particularly tough when examining the ties that many expats still have with the United Kingdom, in assessing whether someone has a tax liability in the UK or not.
The latest news is that any new rules are now going to be held back to 2013, with a full definition of what’s going to change expected to be published as part of the Finance Bill 2013. Rule changes are proposed to come into effect by April the 6th 2013 – but the rule changes have still not be clarified or confirmed…
So, expatriates are left in a state of limbo, wondering whether they are at risk of falling into the British tax trap from April next year or not…
Currently, as long as you reside permanently abroad, HMRC’s guidelines state: -
Some expat forums are buzzing with speculation on this subject matter, and we’ve received enquiries from concerned expats. People have read/heard that where their children are educated may have a bearing on their residency status, which seems hugely unfair. Others are concerned that if they move abroad for work but their spouse remains in the UK, then this will mean that they too are considered tax resident in Britain for all taxation matters.
Having consulted with a number of accountancy and financial services companies to assess their take on the situation as it stands, all are offering the same advice to expats. I.e., it’s critical to distance yourself as much as you can from the UK if you want to avoid having any taxation liability in Britain.
This is sound advice – but not always so easy to follow if you retain property onshore, bank accounts or investments in the UK, or if you have family ties or simply a cultural pull that brings you back to Britain regularly for visits.
We will have to once again wait and see what HMRC has up its sleeve before anyone can issue any firm guidance to expatriates. But in the meantime it’s a worrying time for many. The only good news is that the new statutory test hasn’t been rushed through as part of this month’s budget – at least all expats have a little room to breathe and plan.
Are you going to be affected by the new rules? What are your thoughts on the concept of a statutory test to define residency status? We welcome your feedback…