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Sort
your tax out ?
It
is a sad fact that wherever you decide to move to, you
cannot hide from the Inland Revenue.
As a UK expatriate, you may have left the country just
for a short-period, or for an indefinite but longer period
of time, or you may have left with no intentions of returning.
Whatever your circumstances, the UK’s Inland revenue
has kindly reserved a special category specifically for
you, and it is in your best interests to establish your
tax status, rather than leave it and get stuck with a
bill.
Essentially, an expat’s tax status will fall into
one of five categories:
Resident:
This is based upon the amount of time spent in the UK
on an annual basis. If you spend 183 or more days in the
UK in any one tax year you will be classified as a resident
and will pay UK tax as a normal resident.
Ordinarily resident:
This is a longer-term concept where the Inland Revenue
will take a view over three to four years on where an
expat habitually resides. If you are habitually resident
in the UK for a minimum of 90 days in any one tax year
then the category is ordinarily resident.
Not ordinarily resident:
This category applies to an expatriate who works overseas,
whose intention is to work and reside overseas and who
will not be spending more than 90 days in the UK.
If your intention to remain overseas can be proved before
you leave then this will be your tax status from the day
of leaving the UK along with the accompanying tax breaks.
Not resident:
This is a definite and sought after status applied to
an expat who conforms to the rules of working and living
overseas and not returning to the UK for any period of
time which could throw doubt on their intentions. Having
‘not resident’ status means that you are not
liable to pay tax on income or capital gains (CGT), provided
these are as offshore as you are!
Domicile:
Any UK citizen, wherever based, remains UK domiciled unless
permanently emigrating through official channels. Your
domicile is linked to the country where your roots are
and this status clings to you for life, catching up on
your death when Inheritance Tax (IHT) is due.
It may seem from the basic outlines that there isn’t
much difference between these categories, but certain
tax rules apply to certain ones. For example, as ‘ordinarily
resident’ you are still within the capital gains
framework, but if you are ‘not ordinarily resident’,
there is no liability for CGT.
According to the Inland Revenue, an expatriate must clarify
their status on departure or as soon as can be arranged
if already overseas.
To inform them of your tax status, all you have to do
is fill out a P85 form, which covers all the technicalities
of date of departure, intention of remaining overseas
and assets, such as property, that are being left behind
in the UK.
The answers that you give in this form are what determine
your new tax status. If you are uncertain as to the length
of time you are going to be overseas, it is worthwhile
sending a letter with the form, or a copy of your employment
contract, to help the Inland Revenue sort out your tax
status.
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