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Practical issues on emigrating to escape CGT

23rd Jul 2012
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With the new statutory residence test due to come in from April next year, taxpayers contemplating emigration have to prepare themselves to commit to a five-year period abroad, and comply with other conditions.

“The SRT resolves some of the ambiguities that led to situations such as the Robert Gaines-Cooper Supreme Court case, but the extra clarity has come at the cost of more onerous requirements,” said Andrew Burgess at a Mercia tax lecture in Newbury this week.

Burgess ran through the upcoming changes on residency pointing out that the starting point was to consider automatic non residency. If that was not relevant then the test moved to consider automatic residency. Many people would not be able to fulfil either of those tests and so would be dependent on the ‘sufficient ties test’ to determine their residence in any year. This combines days in the UK with the number of ties that link a person to the UK and any events which caused the individual to spend more time in the UK that the test allowed would be a problem.

For those individuals who have found even a rate of 10% unacceptable, in addition to satisfying the proposed test, there are a number of personal factors to consider.

Burgess explained that issues such as security may be outside an individual’s control and HMRC does recognise up to 60 days of “exceptional circumstances”, which could include admission to hospital or a revolution in the country you’ve moved to.

Personal factors are within their personal control, but nevertheless need to be considered and could cause an individual to return to the UK prematurely.

These include:

  • Employment of the partner
  • Education of the children
  • Family issues, e.g. the health of parents
  • Own state of health and care facilities in the new location
  • Social issues
  • Boredom

On the last point Burgess said this is a common problem for emigrants - that often life outside of the UK can be boring and individuals may miss the social life as well as interaction with family and friends.

“Playing golf everyday on the Costa Brava can get boring, so I’ve been told,” Burgess said. He added that one client had to return to the UK because the old age healthcare provision in Portugal wasn’t up to scratch.

He also cited another client who was passionate about horse racing and when given the date in which to visit the UK went straight to a race meeting on the first day back.

Burgess stressed that clients seeking to become non resident to avoid CGT will have to watch the SRT tests for at least five UK tax years after the time they depart because if residence is tripped in any of those years the gain will become chargeable to UK tax.

Another important point Burgess made was to “watch where you’re going” and check out the other end.  You need to think carefully about what the tax regime is like where you’re going to and remember that timing is very important.

Burgess explained that the UK tax year is out of line with almost all other countries and a departure from the UK at the end of our tax year, with a disposal early in the next year, could make the gain chargeable in the new country.

“It may be better to delay arrival in the new country until after 1 July to avoid triggering residence,” he said.

It is essential to check the rules on residence and on capital gains in the new country before departure.

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