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Retiring abroad – the tax consequences

For many business people the ultimate dream is to retire abroad to a country that offers an improved climate and a favourable tax regime.

Unfortunately, if you do not sever all ties with the UK you may end up with unwelcome tax bills.

A recently published Court of Appeal case related to the tax affairs of Mr Robert Gaines-Cooper – a businessman who amassed a considerable fortune and wanted to live in the Seychelles.

He wanted to be treated as non-resident for UK tax purposes so that broadly his future income was free of UK tax.

The Court said that he was still resident in the UK, giving him some unwelcome tax liabilities.

Could he have avoided this? It is difficult to say as the rules are very complex, but broadly there are two ways of becoming non-resident for UK tax purposes:

1. You leave the UK under a full-time contract of employment that lasts for at least a full tax year. You become non-resident from the date of departure provided your return visits are less than 91 days per tax year.

2. For any other purpose there must be a significant change in the pattern of how you live your life. It must show a clear break from the UK. You should:

• Sever all business, social and family ties with the UK. Such as resigning your job, closing UK bank accounts, taking your spouse and dependents with you, cancel membership of UK clubs etc.

• Sell your UK property or let it for a long period.

• Create proper ties with your new country, such as buying a property, registering to vote, sending dependent children to school in your chosen country, making a will and making provision to be buried abroad.

• Ensure your total return visits to the UK are less than 91 days in each tax year.

In either case you may be subject to UK tax on certain sources of UK income such as UK rental income.

Anyone looking to emigrate needs to take specialist advice.

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