Leaving the UK? Here are 10 things to think about before you do.
Life is never certain, and as seen last week in the Spring Budget 2024, neither are taxes. The Spring Budget announced new proposals that will change how a non-UK domiciled individual will be taxed in the UK and, as a result, you may be wondering whether the time has come to leave the UK.
Whether your departure is for tax, or indeed for economic, social or other personal reasons, it is necessary to be able to prepare adequately for the transition. This is particularly important for tax purposes, as there can be unexpected and sometimes undesirable implications of leaving the UK.
So, what exactly should you do prior to leaving?
1 Are you really going? Understand your residence status
Before departing, you should establish whether you will remain UK tax resident but spend less time in the UK, or if you are going to become non-UK tax resident. Your circumstances and UK day count will be tested against the Statutory Residence Test (“SRT”) to ascertain the tax year in which you will cease to be UK resident (if at all).
You may also qualify for ‘split-year treatment’ (“SYT”) if you leave before 6 April 2025. Under SYT the tax year will effectively be split into a UK part and a non-UK part, whereby you are (broadly) taxed as a non-UK resident during the non-UK part (but subject to certain exceptions).
Exceptional circumstances
Although there are rules within the SRT that allow for days spent in the UK to be ignored in ‘exceptional circumstances’ recent case law has indicated this should not be relied upon, and we strongly recommend taking advice if you expect to do so.
2 A good time, not a long time – domicile implications
The current remittance basis of taxation will be abolished for non-doms going forward. From 6 April 2025, the regime will be replaced with a new 4-year Foreign Income and Gains (“FIG”) regime for individuals who become UK tax resident after a period of at least 10 tax years of non-UK residence.
Individuals who are no longer able to claim the remittance basis on 6 April 2025 and are not eligible for the new regime will, for 2025-2026 only, pay tax on 50% of their foreign income only. This does not apply to foreign chargeable gains. From 6 April 2026 tax will be due on all worldwide income in the normal way.
As such, from 6 April 2026, formerly non-domiciled individuals will see many of the UK tax benefits previously available to them abolished.
Furthermore, it is proposed that, from 6 April 2025, an individual will be subject to UK Inheritance Tax (“IHT”) on their worldwide estate if they have been UK tax resident for 10 years, and will remain within the scope of UK IHT for the 10 years following departure from the UK. Therefore, if you have already been UK tax resident for 10 years or more (or will have been by 6 April 2025), you may wish to plan your exit from the UK to be before 6 April 2025.
We are awaiting legislative details on the new proposals, which should be studied carefully once released to understand the full details of the transition. However, for many, the changes will prompt an exit from the UK.
3 You’ll be back
Despite leaving the UK and ceasing UK tax residence, you may have a continued presence in the UK due to work or other commitments.
It is important to note that as a non-UK tax resident you may still be chargeable to UK tax on your UK sourced income, including any salary attributable to employment duties (beyond those that are merely incidental unless you are a director) performed in the UK, or UK rental property income.
Crucially, you may be taxable on your UK income in your new jurisdiction of residence also. As such, consideration must be given to any Double Tax Treaty applicable to your various sources of income between the UK and your new country of residence.
4 Don’t forget compliance
Usually, if you are required to file a tax return on an annual basis, you’ll need to submit a final tax return and inform HM Revenue & Customs (“HMRC”) that you have left the UK.
If you are no longer required to file tax returns because of your departure, you or your tax adviser may be able to ask HMRC to close your self-assessment records. If HMRC issue you with a tax return but you do not file it or do not tell HMRC to rescind the return, you will incur a penalty irrespective of whether you have any UK tax to pay.
In general, non-UK residents will continue to have a UK tax return filing obligation if they are in receipt of UK income, if they dispose of an interest in UK land (or shares in vehicles used mainly to hold UK land) or if they dispose of assets used or held for the purposes of trade carried on in the UK via a branch or agency.
If you do not typically file tax returns, then it may be prudent to file Form P85 ‘Leaving the UK – getting your tax right’. This can assist with claiming a refund where you have ceased UK employment. You can also file a P85 if you do usually file a return, simply to alert HMRC that you will become non-resident.
5…and National Insurance
Depending on where you move, you may retain an obligation to pay National Insurance in the UK for one or more years following your departure. There are various agreements with EU countries, as well as ‘reciprocal agreements’ with non-EU jurisdictions that dictate the terms of where social taxes are payable.
6 Where are you going?
If paying a hefty tax liability isn’t bad enough, paying it twice is even worse. Aside from getting things right when you leave the UK, you should also ensure you have obtained tax advice before acquiring tax residence in your new jurisdiction.
Consulting with a tax adviser well in advance of your move will not only save you a headache down the line but may also present you with planning opportunities prior to your departure from the UK.
We have a large network of advisers and would be happy to refer you to a tax adviser in your jurisdiction of choice. Please look out for our upcoming article on tax-efficient jurisdictions.
7 What are you leaving behind?
If you own a home in the UK, consideration should be given to what you’ll do with the property following your departure.
If you decide to rent the property, you’ll need to register as a non-resident landlord, otherwise your tenant or letting agent will be obliged to withhold tax from the gross rental payments affecting cashflow (and often leading to a tax overpayment).
If the UK property was your main home, renting the property can affect the tax payable on any gain realised on the sale of the property. There is a Capital Gains Tax exemption if the property was your main residence throughout ownership. However, periods of absence from the property can restrict relief, leading to a potentially significant liability on disposal.
You can have one ‘main residence’ at any one time for the purposes of this relief, so you may wish to consider nominating your UK home as your main residence.
8 The missed opportunities
Tax efficient investments
Tax incentives are available to those who subscribe for shares in various high-risk start-up companies. However, if you leave the UK that relief may be withdrawn resulting in a tax charge.
Furthermore, if you hold ISAs, you will not be able to make additional investments into these wrappers while you are non-UK tax resident.
Child benefit
You may cease to be eligible for child benefit payments on leaving the UK and you should contact the Department for Work and Pensions immediately to inform them if you plan to cease residence.
9 The new opportunities
Salary and share awards
As noted above, non-residents are subject to UK taxes when they perform employment duties (beyond those that are merely incidental to their employment) in the UK. If you are paid a salary, this is typically apportioned according to your UK workdays against total workdays during a tax year. Therefore, you may be able to reduce a UK tax bill by working less in the UK.
If your employer is located in the UK, it is likely that they will automatically withhold taxes in full on the same basis as while you were UK tax resident, giving rise to a tax overpayment. However, we can assist your employer with submitting the relevant forms to restrict the deduction of Pay As You Earn (“PAYE”) to an estimated proportion of your duties in the UK.
Share awards are highly complex, particularly when the vesting of the share award spans a period of residence and non-residence in the UK. All or part of your share awards may not be subject to UK tax and we recommend reviewing the terms of any employment related securities to ensure tax efficiency where possible if a departure from the UK is being considered.
10 Not just you, but the whole family
Don’t forget to check your family’s tax position too if it’s not just you moving abroad. Alternatively, if your partner and children remain in the UK, talk to us about any opportunities that may arise for the family holistically.
The extended ‘family’
Companies
If you’re a director of a company incorporated outside the UK, which is UK resident because you exercised the management and control of that company in the UK, then ceasing UK tax residence may lead to an inadvertent residency change for the company. A company may also become ‘treaty non-resident’ by virtue of a Double Tax Treaty with another jurisdiction.
Not only must the directors notify HMRC of the migration of the company, but the company will also be subject to an ‘exit charge’. Broadly, the company will be deemed to have disposed of all its assets at market value and immediately reacquire them, leading to an immediate Corporation Tax charge.
Trusts
For trusts, their residence is mainly determined by that of the trustees. Therefore, if you are the sole trustee of a trust and leave the UK, that trust will also become non-UK tax resident. Similarly to companies, all the trust’s assets will be deemed to have been disposed and reacquired at market value, leading to a potential Capital Gains Tax charge.
A problem shared…
The above is not an exhaustive list and there will be other tax and non-tax implications that arise when you move abroad. We recommend consulting your tax adviser well in advance of any move. If you would like to discuss any of the above in more detail, please contact us for further advice.
Nick Tayler
BA (Hons), CA, CTA
Senior Tax Manager