Maybe they are simply looking to retire, or maybe they realise that they can still run their business effectively in the sunshine rather than in the cold and damp UK climate. Clearly, this is a tough call for anyone to make!
Being able to carry on with the business was the deciding factor. No need to look for new work, just a new family home. Your client is the business – where they go, so too does the business.
The tickets are bought; bags are packed – is there anything they may have forgotten?
HM Revenue & Customs!
It is all too easy to forget HM Revenue & Customs (HMRC). Part of the reason your client is leaving the UK may be to escape the taxman – that is, not having to do a UK tax return each year.
The first stage of the plan is not to sell the UK home – just in case it doesn’t work out. It can be easily rented out for six months at a time and that will cover the costs. No need for a letting agent because family and friends have said that they will keep an eye on things.
So, the time has come to get on the plane and say adios to the UK.
But is that right, or maybe they haven’t left the UK (for tax purposes)?
Avoiding an unwanted tax investigation
In this day and age, there is a lot of Big Brother (and I don’t mean the TV show). People are tracked through airports, in and out of countries and then there is the Common Reporting Standard (CRS).
CRS is the automatic exchange of financial information between most governments worldwide, except for a few, such as North Korea and Colombia. So, unless your client is seeking a new life in the sun in those few countries, Big Brother is still watching them.
If they haven’t told HMRC that they are leaving, they will nevertheless keep in touch with them if they have been required to complete a UK tax return each year. That’s because HMRC will have had no reason to update their tax file. As the rental income only contributes in part to the full cost of the (repayment) mortgage, there’s no need to worry about telling the taxman and they haven’t consulted their accountant as to what is taxable and what is an allowable expense.
Hhmm. Maybe that is an over simplification. Come to think of it, have they consulted their accountant at all because the business is still carrying on, albeit remotely, in the UK.
Domicile and residence
For UK tax purposes, it is difficult to change a taxpayer’s domicile; separately, anyone can be resident and taxable in more than one country at the same time.
These two concepts have caught out many UK taxpayers. As a result, they may just get a “nudge letter” about the interest earned on their new bank account in their new country, for example.
It was a good precaution not to sell their UK home, just in case. But now that they realise the UK is no longer for them, they have still decided not to sell and are renting out the UK property on a long-term basis. The UK property is in a nice area, and they have been approached through family and friends to rent it out. But for whatever reason, they continue not to declare the UK rental income to HMRC.
Knock, knock
In this typical scenario, taxpayers can get caught out and find themselves under investigation, facing not just tax but interest and penalties. HMRC may be able to contend that UK rents are taxable in the UK, let alone where the taxpayers are now living.
In some countries, it is a requirement to declare all overseas assets, i.e. the UK property. That fact alone may then be reported back to HMRC. Now the matter becomes more of a ticking time bomb that needs defusing.
So, HMRC sent a nudge letter to the UK address, which was given under CRS. But if the post isn’t being redirected, the letter never gets forwarded to the taxpayer, let alone opened.
So, we can add ignoring HMRC to the list of misdemeanours. The problem is getting worse.
The scenarios above are not uncommon amongst many UK taxpayers. You may come across cases like this with your clients. But what should you do?
Don’t worry help is at hand
At Paul Malin Consultancy, we focus on the past and the UK tax system – not tax planning or “overseas tax.”
If these are the circumstances that your clients find themselves in, help is at hand.
By acting now and before HMRC tracks your clients down, we can almost certainly reduce the tax penalties. Depending on all the relevant facts, we may even be able to offset some of the tax in one jurisdiction against another.
Don’t leave it too late – Big Brother is watching your clients.
If you want help and advice on clients who have moved overseas and may have unresolved UK tax issues, you can contact Paul Malin at 07979 313 010.
