Retiring abroad - the tax pitfalls

Summer 2010

If you are thinking of retiring abroad to enjoy a better climate and to escape the UK tax system, you might find it harder than you expected, especially after a recent tax case decided in the Court of Appeal concerning a man who had left the UK to live in the Seychelles.

The man in question was a certain Mr Robert Gaines-Cooper who had made a considerable business fortune, and wanted to enjoy it by being treated as non-UK resident, and therefore free from tax on all of his income and gains arising outside UK.

There are two main ways of becoming non-resident. If you leave the UK and work under a full-time contract of employment that will last for at least one complete tax year, you are non-UK resident from the day after departure, provided your return visits are limited to fewer than 91 days per tax year.

But if you retire abroad or you are leaving for some other purpose, there must be a demonstrable change in your normal pattern of living which clearly shows that there is a break from UK residence. In future, would-be non-UK residents should ensure that they can demonstrate that they have cut all meaningful ties with the UK. In particular, such emigrants should:

Sever all business, social and family ties with the UK. For example, resign from employment, close bank accounts, take their family with them, cancel membership of clubs etc.
Sell any accommodation, or at the very least let it out on a longterm lease (even then, HM Revenue & Customs (HMRC) will want a good explanation as to why the property is being retained). This was the main problem for Mr Gaines-Cooper, because his Oxfordshire mansion was regarded by HMRC as his ‘main home’.
Create meaningful ties with the new country of residence – for example, buy a property, register to vote, make a will in the new country or have children educated there.

If you are going to live abroad, but not under a full-time contract of employment, you will need to take care to sever your ties with the UK. Even if you manage to achieve non-resident status, remember that when you are counting days in the UK, any day in which you are here at midnight is considered to be a day spent in the UK. But you can ignore days spent in the UK due to exceptional circumstances, like the recent closure of European airspace.