Non-UK resident - Income tax / capital gains / PPR relief


Non-UK resident - Income tax / capital gains / PPR relief

Postby Pearce on Tue Mar 09, 2010 6:16 am

I have some questions relating to a few areas of taxation. I would be grateful for some advice.

I am 60 years old and have recently retired from my employment with the local council.
I will be receiving a tax free lump sum as well as a small private pension amounting to about £1500 per year.
I have foreign nationality but I am a UK citizen and resident and I have lived in the UK for over 30 years.
For the last 20 years I have lived in the same property which has been my main and only home.

Within the next month or so I will be starting work abroad.
I will be working as self employed and have been told by the family paying for my services that the work should last 3 years or more. Although this cannot be guaranteed absolutely.
This job will require me to spend 2 out of every 3 weeks abroad. This amounts to approx 242 days per year.
I will therefore be in the UK for a maximum of 123 days per year.

1. My first question relates to residence for tax purposes.
Will the above description enable me to be classed as non-UK resident for tax purposes? And therefore I would only pay UK tax on income arising within the UK?
Is it going to matter (in terms of tax residence) that my children are all still in the UK and I still own a property there which I will be letting out (as a non resident landlord)? Will these be classed as ties to the UK that will inhibit my non-residency application?
Also, if for example my work abroad were to unexpectedly come to an end after about 1 year, how would this effect my UK tax situation? Would HMRC ask for back payments and declare that my residency was UK based all the time because I did not fulfil the 3 years of working abroad? Or are they more reasonable?
Also how easy is it in general to change my residency back to UK if my work comes to an end at any point before or after 3 years?
Is it worth all the hassle for a possible £6000 income tax saving per year? Or is it a lot of effort and would it leave me with a lot of restrictions and confines etc?
I’ve read that HMRC are generally fairly relaxed about the granting of non-residency and are only really concerned with high net worth individuals who present a potential big loss to the tax coffers, would this be right?

2. My second question relates to being a non-resident landlord.
Assuming that I become a non-UK resident for tax purposes, would I be right in thinking that the rental income arising within the UK from my UK property will be taxed as normal under UK tax?
And I would still be able to deduct mortgage interest etc?
Also my UK private pension would be taxed under UK tax to I presume?

3. Finally in terms of capital gains tax.
I plan to sell my UK property within the next 2 to 5 years.
This property has been my main and only home for the past 20 years and has not been used for any business purpose.
If I become non-UK resident for tax purposes, will this in any way effect my entitlement to the PPR relief (principal private residence relief)?
What if I don’t come back to re inhabit the home before selling and instead continue living abroad and sell it from there after say 3 years?
Would I be right in thinking that within the last 3 years before sale of the property I will be entitled to PPR relief whatever the circumstances, whether I am tax resident or not?
It is very important to me that I do not compromise this PPR relief as it is obviously a huge tax saving that I would not want to jeopardise. This is the most important factor in deciding whether or not I go ahead with this non-UK residency application so specific advice on this is essential.


Those are the main issues. I would very much appreciate any help and advice on the points I’ve raised. Also any suggestions of things I might not have considered or potential pitfalls etc.

Many many thanks in advance,

Tony.
Pearce
 
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Re: Non-UK resident - Income tax / capital gains / PPR relief

Postby AvocadoK on Wed Mar 10, 2010 10:20 pm

1. It's unlikely that you would be considered non UK resident based on those facts. Firstly, if you average more than 91 days in the UK over a 4 year period, you won't be non UK resident. Secondly, even if you get below that limit, you need to show that you have left the UK. This is a much more subtle test, but it does not help your case if you have a house in the UK. You don't mention if you are married - but if you are and your wife is staying in the UK, that would be another factor against you being non UK resident.

Is HMRC more relaxed in smaller cases? Not really. They may well try to target larger cases, but they don't really know how big a case is until they have picked it. Once they have picked you, you can expect them to pursue the matter doggedly even if the costs they run up bear no relation to the tax at stake.

2. Yes, rental income from UK property would be taxable in much the same way if you were non UK resident. Likewise, personal pensions would be taxable.

3. If you were non UK resident, you would not be liable to CGT on your house unless you returned within 5 years, so PPR would not be an issue. You are right to say the last 3 years qualify for PPR in any event.

Regards

AK
AvocadoK
 
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