expat network

British Expats: Keep Records Which Show Non-Residence

With tough new statutory residence test rules, British expats have to make sure of their status by keeping careful travel records.

The issue of where you are resident for tax purposes can be more complicated than many people realise, say expat advisers Blevins Franks.

If you get it wrong, you could face a tax investigation. If the tax authority wins its case, you could have to pay a large and unexpected tax bill, with interest and penalties. Even if you get it right, you may still have to argue your case, so it is important to be armed with all the facts and keep up-to-date and detailed records.

Residence is a matter of fact. It is where you spend your time. Each country uses different domestic rules to work out who is resident for tax purposes. If you satisfy these rules, you are resident there for tax purposes and liable to tax there, very often on worldwide income and gains. Therefore, you cannot choose where to pay tax.

You can, however, choose where you spend your time, to determine your tax residence. You can also choose when to sell assets, to determine where you pay tax on the gains. But this is where it gets complicated. It is easy to slip up and specialist guidance is essential.

Likewise, if you are resident in the UK you are liable for UK tax on your worldwide income and gains. However, the UK residence rules are far more complex.

Prior to April 2013 the concept and definitions of ‘residence’ were not laid down within UK legislation. Taxpayers had to rely on previous case law and HM Revenue & Customs (HMRC) guidance to determine their residence position. The rules contained many grey areas and some taxpayers inadvertently made mistakes.

The statutory residence test, in effect since April 2013, provides more clarity, although it is still complex. It is based on a combination of day counting and the number of ties you have with the UK. For three years the old and new rules work side by side.

HMRC are still catching up with people over their residence position several years ago. Two court cases highlight the importance of taking expert advice, and following the advice carefully and keeping meticulous records.

Mr and Mrs Rumblelow, living in Portugal, lost a court case with HMRC over their residence status and now have a tax liability of £600,000 to settle. On the other hand, HMRC lost a similar case against Mr Glyn, who saved around £5.5 million in tax through very careful planning and record keeping over his move to Monaco.

Unless your situation is straightforward – and you are you sure it is? – it is essential to take specialist advice from an adviser who is up-to-date and experienced with the residency and tax rules of both the UK and the country where you are living.


There’s more detail on the statutory residence test here.