Tax on overseas income (salary)...changes to tax rules!!!! help

dancingdandare

Hi

I am currently working in the middle east. I have been out here a nearly a full tax year, as in i came out the end of march 07. I have only been back to the uk twice for a total of 35 days, so i will be easily within the 91 days which i am required to be out of the country to claim NT status and be treated as a non-resisdence for tax purposes.

It has been raised to my attention that the goverment are proposing changes to the overseas tax policy. The below link explain in detail;

http://www.britishtaxpayers.com/tax-news.php

Plus the below extract is from the british expat magazine and discusses the issue;
Residence and Domicile

Generally, UK residents are taxed on world-wide income and world-wide Capital Gains.
If you have moved abroad you may be classed as non-resident for tax purposes. As a result, you will be taxed on your income only, and any non-UK income (such as your salary or offshore investment income) will be exempt. You can also be exempt on world-wide Capital Gains subject to certain conditions

This is a complex topic and HM Revenue and Customs has recently begun stricter enforcement of residence rules. Expatriates can no longer rely on non-resident status being endorsed purely because they spend less than 91 days in the each year.
HM Revenue and Customs (HMRC) is deepening its scrutiny of non-resident taxpayers, and is beginning to interpret the issues of residence differently. HMRC recently published its proposal for revised Residence Pages to the UK Self-Assessment 2006/7 tax return.

There are substantial amendments which, if finalised, will necessitate a far more thorough disclosure on residence than previously required. If you fall into one or more of the following categories you may need to take further advice:

• Have a property available for use in the UK
• Perform duties of employment in the UK
• Have immediate family resident in the UK
• Make many frequent visits to the UK

To follow is an overview of the situation as it currently stands.
The rules which govern UK residence were well understood by British expatriates. At their core the current guidelines state that expatriates keeping their visits to the UK at less than 91 days per year are viewed by HMRC as non-resident.

Other conditions to the guidelines of course apply, but the heart of this rule has provided expatriates with a clear view of what was needed to maintain non-resident status. The guidelines have also provided a framework to those who work or have retired overseas – even if a property has been retained in the UK.

When a review of the Residence and Domicile rules was announced by the UK Government in 2002, many were concerned that serious changes would follow. Although little in the way of formal proposals have been made, the 2006 Budget noted that the review was still in progress. Most recently sinister developments have emerged which provide a real concern for expatriates.

Although the Government’s review has not yet delivered its conclusions, changes to residence rules appear to be afoot through a “reinterpretation” of current regulations. The upshot is that HMRC seems to be adopting a stricter attitude towards endorsing expatriate status. In a recent tax case (HMRC vs Shepherd) the ruling indicated that a new, and more difficult, hurdle had to be cleared before the qualification for expatriate status was granted.

The ruling indicated that in the absence of a “clear and distinct” break from the UK, any move abroad will be regarded as only temporary. As a result, the guidance provided by HMRC’s own publication on the subject can no longer be regarded as representing its current thinking on the matter.

Expatriates can no longer rely on non-resident status being granted purely because they are absent from the UK.

The one exception is where the individual moves abroad for full time employment which lasts for a period of at least one full tax year (i.e. 6th April to the following 5th April). Yet even here the rules have been tightened. To qualify, it is now necessary to show that all of the duties are performed overseas, and if any duties of substance are carried out in the UK (i.e. a director attending occasional board meetings here) the new interpretation could apply.

This gives rise to all sorts of problems. For example, if a director of a UK company accepted a two year appointment abroad and, for entirely understandable reasons, chose to leave his partner and children in the UK, this would be regarded as something other than a “clear and distinct break” and non-resident status could not be assumed.
Equally, if you were to retire abroad and retain a property in the UK, as a foothold in the market or a base during return visits, a claim to expatriate status could again be challenged. It is critical to act sooner rather than later in this important area, to ensure
that your tax planning strategy works with the changing guidelines.
Pulling out of the UK property market altogether, or making the property unavailable by commercially letting, would be effective – but not everybody wants to take such drastic steps.
Domicile

In general terms, domicile means a person’s natural homeland. Whereas residence status is determined by UK tax legislation and HMRC practice, domicile is much more fundamental, being a concept of general law.

No-one can be without a domicile, even if stateless, and no-one can have more than one country of domicile at any one time. Domicile falls into two categories:

Domicile of origin is determined by law at birth. A legitimate child takes his or her father’s domicile as their own domicile of origin; an illegitimate child takes the mother’s domicile. Domicile or origin is for life and never changes. It may, however, be superseded by a domicile of choice.

Domicile of choice can come about if a person adopts some other country as their homeland. Precisely what one has to do to establish a domicile of choice is not set down in law. The major criterion will be the making of a home in a new country, with the intention of remaining there permanently or indefinitely. Other factor may include taking up citizenship, making a will, voting and educating one’s children there.

As a result of these rules, it is possible for a British expatriate to work outside the UK continuously for 20 years or more and still be regarded as UK domiciled. Much depends on whether the expatriate moves about the world or settles in one place.
For many, this will come as an unpleasant surprise, as although you may escape liability on overseas income and, eventually, on capital gains, full exposure to Inheritance Tax continues."

My question is given that i meet the acception detailed in the paragraph highlighted in blue, does that mean that when i get my salary paid into the uk from an overseas company, will i be taxed on it? I own no property and simply use my parents address still for banking purposes, and have no other ties with the uk.?

Please help if anyone can shed any light on this issue?

Cook_County

The 91 day test is non-statutory, it is based on case law (Wilkie v CIR). It is doubtful if HMRC can change their practice on this test without statute or case law suggesting their new interpretation is valid.

However, for certainty to ensure non-UK residence you should not visit the UK at all in a tax year.

Murdina

This is a complex area and the changes which are planned will of course create more uncertainty.
However, if you are genuinely working and living overseas, with no duties performed in the UK, and minimal visits back to the UK , then I think it is most unlikely HMRC are going to try and argue you have remained UK resident and should have paid tax on your earnings.
My understanding of these changes is that they aim to capture the increasingly common situation whereby people can work overseas say in the week and come home at weekends or perhaps every couple of weeks - so effectively all their ties remain in the UK (such as house, family etc) and it's just a quirk of geography that the miles they travel take them outside of the UK not within it. If your only UK family is your parents then I don't think that would be an issue.
However, you might ask your employers if they provide tax advice to expat employees - many big companies do - so that you could raise your concerns with their advisors.

Cook_County

Murdina is correct based on the Shepherd, Gaines-Cooper & Barrett cases so you would probably win in Court. HMRC may nonetheless take a different view, therefore, I recommend full disclosure on your tax returns.