Moving abroad - How to avoid UK tax residency in 25/26 tax year

pecunianonolet

Hi there,

Mostly active in the Banking & Borrowing area of the forum but hope some tax wizards can help. Planning on moving but getting completely confused by the UK Statutory Residence Test.

I essentially want to know by when I have to be leaving. Clearest cut would be to have left the UK by 5th April 2025 and rental and employment contract terminated by then and all I own in a container and with a moving company. However, a bit short term but not impossible.

Aim is to establish my own company and ideally work as contractor for my previous employer (if they would permit), otherwise advertise my services to the world. Could sustain myself for some time without any income taking a longer sabbatical if needed but ideally I could just change the setup.

Circumstances:

- UK / EU citizen

- UK tax resident for over a decade

- Renting (no property ownership)

- Full time employed by a UK employer via PAYE

- No family ties

Easiest is as above, however, the below flow chart tells me I can spend fewer than 16 days in a given tax year in UK. So I would need to be leaving by the 21st April (before midnight) or to be safe travel on the 20th April.

What I don't understand is about employment. 

- Would I need to have my employment terminated by 5th April?

- If I would be terminating my work contract by the 18th of April, would I still be deemed a tax resident, even if I would leave by 20th April?

- Could I work longer e.g. until end of April (30th April)?

--> Expecting a work bonus to be paid with the April salary, which I would like to benefit from before departure.

I try to establish the absolute last day by when I have to leave and avoid triggering tax residency. Below flow chart is what I find helpful (among the many online) but still confusing. It's all as clear as mud to me.

I know that there is the split year treatment option but that seems to be even more confusing.

https://openpublications.burges-salmon.com/srt-flowchart-for-website-article-v251540540/68623933/fullscreen

Any help would be greatly appreciated!

DBdoobydoo

Where are you moving to? If there is a Double Taxation Treaty with the UK then the residence tie breakers will trump HMRC's SRT so most of the time the SRT is irrelevant so don't fixate on it.

The SRT rules are meant to prevent tax evasion by those who claim to be resident in another state with a low/no tax regime but are actually resident in UK.

pecunianonolet

[Deleted User] said:

I guess the first question is what are you trying to avoid by being tax resident in the UK to see if it actually matters.  For example, some things are taxed in the UK regardless of whether you are resident or not.  Other things are taxed when you become UK resident again if you only plan to be temporarily non-resident.

Then I'd say that the split year treatment is not hard, but it's not actually an option, that's just how the rules apply.  Lastly, it might not matter if you become non-resident under a DTA while still being UK tax resident under the SRT.

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country. 

[Deleted User] said:

Oh, and I think this flow chart is way more helpful: https://assets.kpmg.com/content/dam/kpmg/pdf/2016/01/statutory-residence-test-flowchart.pdf

Thanks for posting and aware of that and it is indeed very helpful but it kind of confuses me more. I may overthink it all.

DBdoobydoo said:

Where are you moving to? If there is a Double Taxation Treaty with the UK then the residence tie breakers will trump HMRC's SRT so most of the time the SRT is irrelevant so don't fixate on it.

The SRT rules are meant to prevent tax evasion by those who claim to be resident in another state with a low/no tax regime but are actually resident in UK.

Planning on moving to Cyprus and acquire non dom status there. They do have a double tax treaty with the UK so they will exchange any data anyhow. Can you please elaborate a bit more on why the SRT is irrelevant?
 

TheSpectator

pecunianonolet said:

[Deleted User] said:

I guess the first question is what are you trying to avoid by being tax resident in the UK to see if it actually matters.  For example, some things are taxed in the UK regardless of whether you are resident or not.  Other things are taxed when you become UK resident again if you only plan to be temporarily non-resident.

Then I'd say that the split year treatment is not hard, but it's not actually an option, that's just how the rules apply.  Lastly, it might not matter if you become non-resident under a DTA while still being UK tax resident under the SRT.

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country.
 

What makes you think you will pay tax on an inheritance? Depending on how you invest it it may generate taxable income but there will be no immediare tax for you to pay.

pecunianonolet

TheSpectator said:

pecunianonolet said:

[Deleted User] said:

I guess the first question is what are you trying to avoid by being tax resident in the UK to see if it actually matters.  For example, some things are taxed in the UK regardless of whether you are resident or not.  Other things are taxed when you become UK resident again if you only plan to be temporarily non-resident.

Then I'd say that the split year treatment is not hard, but it's not actually an option, that's just how the rules apply.  Lastly, it might not matter if you become non-resident under a DTA while still being UK tax resident under the SRT.

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country.
 

What makes you think you will pay tax on an inheritance? Depending on how you invest it it may generate taxable income but there will be no immediare tax for you to pay.

It's not cash, it's property but split with 3 people so may have to go for sale if none can pay out the others. A complicated family matter and I have no idea about inheritance taxes and law but it would be a much cleaner cut if I would not have to deal in the end with 3 countries. It's just a thing in the back of my mind and may or may not be relevant at all to the initial question.

pecunianonolet

[Deleted User] said:

pecunianonolet said:

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country. 

Fair enough.  But even if you left on 5 April, you'd still get taxed in the UK on your April bonus.  

pecunianonolet said:

Planning on moving to Cyprus and acquire non dom status there. They do have a double tax treaty with the UK so they will exchange any data anyhow. Can you please elaborate a bit more on why the SRT is irrelevant? 

OK.  The way a typical DTA works is:

1. You apply the domestic rules of each country to see whether you are resident in either or both countries.

2. If you are resident in both countries, you use the DTA tie breaker clause to work out which country you are tax resident in.

I don't know much about Cyprus as it wouldn't be my country of choice to move to.  But I understand to be resident under Cyprus domestic law, you need to be in Cyprus for 183 days in a calendar year (not the UK tax year, not a rolling 12 months).  There's another 60 day rule but that's not relevant if you were also tax resident in the UK.

A quick skim at the tie breaker class suggests it follows the OECD model (permanent home, centre of vital economic interests, etc). 

pecunianonolet said:

[Deleted User] said:

Oh, and I think this flow chart is way more helpful: https://assets.kpmg.com/content/dam/kpmg/pdf/2016/01/statutory-residence-test-flowchart.pdf

Thanks for posting and aware of that and it is indeed very helpful but it kind of confuses me more. I may overthink it all.

It can definitely get complicated.  Easiest way to understand it is:

(i) decide on a fact pattern (e.g. I will leave on 1 May, not get a full time job in Cyprus, not work at all in the UK, spend a month in the summer in Helsinki, a month in Seattle, visit the UK to see my 92 year old relative for three days every month and stay in their spare room),

(ii) apply the UK SRT rules, the split year rules, the Cyprus residence rules and, if necessary, the DTA tie breaker to those facts, and

(iii) then tweak your assumptions and see what happens that might change your residence position (e.g. what happens if your relative dies and you spend ten extra days in the UK dealing with their funeral and instructing solicitors to help you as executor). 

Thank you, no relatives in UK so that can be taken out of the equation. 

TheSpectator

pecunianonolet said:

TheSpectator said:

pecunianonolet said:

[Deleted User] said:

I guess the first question is what are you trying to avoid by being tax resident in the UK to see if it actually matters.  For example, some things are taxed in the UK regardless of whether you are resident or not.  Other things are taxed when you become UK resident again if you only plan to be temporarily non-resident.

Then I'd say that the split year treatment is not hard, but it's not actually an option, that's just how the rules apply.  Lastly, it might not matter if you become non-resident under a DTA while still being UK tax resident under the SRT.

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country.
 

What makes you think you will pay tax on an inheritance? Depending on how you invest it it may generate taxable income but there will be no immediare tax for you to pay.

It's not cash, it's property but split with 3 people so may have to go for sale if none can pay out the others. A complicated family matter and I have no idea about inheritance taxes and law but it would be a much cleaner cut if I would not have to deal in the end with 3 countries. It's just a thing in the back of my mind and may or may not be relevant at all to the initial question.

So we are talking potential Capital Gains Tax, which only becomes an issue if it sells for above Probate value. CGT on a UK property disposal won't be avoided by being non-resident.

pecunianonolet

TheSpectator said:

pecunianonolet said:

TheSpectator said:

pecunianonolet said:

[Deleted User] said:

I guess the first question is what are you trying to avoid by being tax resident in the UK to see if it actually matters.  For example, some things are taxed in the UK regardless of whether you are resident or not.  Other things are taxed when you become UK resident again if you only plan to be temporarily non-resident.

Then I'd say that the split year treatment is not hard, but it's not actually an option, that's just how the rules apply.  Lastly, it might not matter if you become non-resident under a DTA while still being UK tax resident under the SRT.

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country.
 

What makes you think you will pay tax on an inheritance? Depending on how you invest it it may generate taxable income but there will be no immediare tax for you to pay.

It's not cash, it's property but split with 3 people so may have to go for sale if none can pay out the others. A complicated family matter and I have no idea about inheritance taxes and law but it would be a much cleaner cut if I would not have to deal in the end with 3 countries. It's just a thing in the back of my mind and may or may not be relevant at all to the initial question.

So we are talking potential Capital Gains Tax, which only becomes an issue if it sells for above Probate value. CGT on a UK property disposal won't be avoided by being non-resident.

It's not a UK property. Relatives and property are in another EU country. The question would be if I am still a tax resident in UK if HMRC would want their share. There is no inheritance tax in Cyprus. So if there is no tax obligation with the UK it would only be between the 2 EU countries. 

TheSpectator

pecunianonolet said:

TheSpectator said:

pecunianonolet said:

TheSpectator said:

pecunianonolet said:

[Deleted User] said:

I guess the first question is what are you trying to avoid by being tax resident in the UK to see if it actually matters.  For example, some things are taxed in the UK regardless of whether you are resident or not.  Other things are taxed when you become UK resident again if you only plan to be temporarily non-resident.

Then I'd say that the split year treatment is not hard, but it's not actually an option, that's just how the rules apply.  Lastly, it might not matter if you become non-resident under a DTA while still being UK tax resident under the SRT.

Planning to be a non resident for the foreseeable future > 10 plus years for sure but nobody has a crystal ball. Trying to avoid being a resident so I don't have to pay any taxes anymore in UK on worldwide income, this also includes a potential higher inheritance. Inheritance could be any day but hopefully not for a few years but with relatives being 92 years old everything is always possible, and it would definitely be over the UK limit and would be in a EU country.
 

What makes you think you will pay tax on an inheritance? Depending on how you invest it it may generate taxable income but there will be no immediare tax for you to pay.

It's not cash, it's property but split with 3 people so may have to go for sale if none can pay out the others. A complicated family matter and I have no idea about inheritance taxes and law but it would be a much cleaner cut if I would not have to deal in the end with 3 countries. It's just a thing in the back of my mind and may or may not be relevant at all to the initial question.

So we are talking potential Capital Gains Tax, which only becomes an issue if it sells for above Probate value. CGT on a UK property disposal won't be avoided by being non-resident.

It's not a UK property. Relatives and property are in another EU country. The question would be if I am still a tax resident in UK if HMRC would want their share. There is no inheritance tax in Cyprus. So if there is no tax obligation with the UK it would only be between the 2 EU countries. 

It would be helpful if you said that at the start!