If you are thinking about moving to 'Paradise', there are a few taxation issues you need to be aware of. Unlike the US which taxes its citizens regardless of where in the world they live, the UK uses "residency" to determine an individual's liability to pay taxes. When you become resident outside the UK you will acquire the all-important "non-resident for tax purposes" status. To ensure this status remains legally valid, you may not visit the UK for more than a total of 89 days in any one year. Although you no longer need to notify the tax office, as previously, by completing a special declaration (DOM1), you will need to notify your bank and any financial institutions with whom you have accounts so that interest on deposits and stock and share dividends can be paid to you gross (ie no tax deducted). Incidentally after 5 years' residency outside the UK, you can also lay claim to "non-domiciliary status" which may be beneficial under certain circumstances. When a person dies in the UK, their Estate may well be subject to Inheritance Tax (IHT) and Gift Tax. Assets which include real property, cash in hand, bank accounts, investments, trusts and any gifts over £250 made in the 8 years prior to death are totalled and if that amount exceeds the threshold, currently £325,000, tax at 40% is payable. But in the case of gifts, there are certain exemptions. Suppose an aged relative dies who, before they died, gifted you money or property. Now, if you were ordinarily resident in the UK, any gift over £250 (in value) made in the 8 years prior to death is taxable (there are a few exceptions, for example gifts between husband and wife). If the gift was made 0 to 2 years prior to death, the tax man wants the full 40% but "taper relief" kicks-in after 2 years. But if you are living outside the UK on the date of death and qualify as a non-resident for UK tax purposes, then you are exempt from liability for Gift Tax. However be warned: not all Solicitors are aware of this exemption and also the Solicitor who prepares the Probate and Estate Accounts is required to notify HMRC of all lifetime gifts made by the deceased in the eight years prior to death. That Solicitor should (but may not) advise you that the tax office is aware of aunt Nellie's lifetime gift to you and should you return to the UK to live before the 8th anniversary of her death, you will have to pay Gift Tax (less any taper relief that may have accrued). Disclaimer: The Gift Tax issue has very recently potentially affected me directly and is my understanding of the current tax situation. If you are, or will be, affected by any of the issues raised, you should seek your own independent professional advice.
Jim, Tax regulations are not always as clearly defined as some folks might hope for. But in basic principle non-residents (as opposed to domiciled non-residents, who are now subject to slightly different rules) DO REMAIN liable to UK income tax on income from a property in the UK.
Markham, I'm not proposing to respond point by point to your UK taxation post. You make people aware of some important issues that they should investigate. I would only suggest that certain areas of general law and also tax law are not simplistic. Being Resident, Ordinarily Resident,Domiciled or Non-Domiciled are to the greater extent, often based on rulings from the courts rather than definitions. Individual status is determined by the facts of the individual. It is generaly not simply a question of the number of days you spend in the country. There are a number of complex issues that determine if you are taxed on the ‘arising basis’ or the ‘remittance basis'. Double Taxation Agreements might also impact on the individual final tax position. I would strongly suggest that if anyone is at all unsure of their tax liability position and it becomes impotant to them, then to better understand they should seek specialist advice by discussing with a tax adviser. No offence intended just highlighting that there are significant complexities for the 'layman'
Slightly off topic yet on topic: Taxation on the Isle of Man Standard Tax Rate 10% Upper (maximum) Tax Rate 20% Single Person Tax Allowance £9,300 Jointly Assessed Couple Allowance £18,600 even if wife isn't working. Threshold from 10% to 20% Single Person £10,500 Threshold Married Couple (combined) £21,000 In the Isle of Man an individual’s income tax liability will be capped at £120,000 (which is doubled in the case of a jointly assessed married couple) in relation to all income types. There is no inheritance tax. http://www.gov.im/treasury/incometax/sections/employers/ratesandallowances.xml?menuid=17533
Things are just a bit more complicated than that, and they are due to change very soon. Briefly, from my non expert understanding: There has never been an absolute set of rules to determine UK residency, as shown by the Robert Gaines-Cooper case a few years ago. Mr Gaines-Cooper had stayed within the accepted rules as detailed in the HMRC guidance document - IR20, but the tax authorities hit him with a multi million pound tax bill going back over several decades. New guidelines, a "statutory residence test" are due to come into force in the next UK tax year. These comprise of three parts. There are several absolute tests for non residency If one of these is not met, there are several absolute tests for UK Residency If neither of these are met various connecting factors such as family, home, are considered. This gets a bit complicated, but the first section, "absolute tests for non residency" looks like being: Spend less than 16 days in the UK during a tax year. or Non-resident in previous 3 years, and spend less than 45 days. or Leave the UK for full time work abroad. This "full time work abroad" test looks a bit dodgy for people working on contract abroad, especially when not working for the full year. Anybody resident abroad should check the draft documents carefully. Details at http://www.hm-treasury.gov.uk/consult_statutory_residence_test.htm Guidance notes here: http://www.hmrc.gov.uk/budget-updates/11dec12/stat-res-test-note.pdf And I believe that it is important to complete form P85 when leaving the UK. http://www.hmrc.gov.uk/cnr/p85.pdf
Im no expert on tax laws anywhere but it seems that any Fil Brit couple moving to the Philippines with the intention of buying property in the wife`s name or even just having a simple joint bank account..Taxes will apply IF God forbid your wife passes before you to the tune of around 20% !!! No allowances as far as I have yet heard,just 20% inheritance taxes due after 6 months of her death payable in regards her total estate. Now Im beginning to understand why the Filipino constitution allows foreigners to inherit land and property from his/her Filipino spouse!!
The new UK - Statutory Residence Legislation is still passing through the UK parliament. This could affect liability to income tax and capital gains tax for many UK expats who still have connections to the old country. Best to be aware of these, especially if you have retired/live abroad but still visit the UK regularly. The page below has guidance to the rules as a pdf download. The last link on the page "Go to the Tax Residence Indicator" is a link to the pilot version of the tax residence indicator (online test). hmrc.gov.uk Residency Test
The complexities of taxation can easily catch you out, my wife knows to leave me alone for a day or two when it comes to the Self Assessment time. For reasons which I won't go into here, we remain ordinarily resident in the UK which complicates matters no end, but does mean that I gain more from the Inland Revenue then I hand over....
I agree. And well worth spending a couple of hundred quid or so a year to get it right and make sure you get what the tax man owes you, in some cases. A few years ago I paid just £200 to an accountant to get £7000 back for that year after PAYE, from the then Inland Revenue, solely relating to residency status laws working to my advantage as I had spent a lot of time outside of UK waters.
