Returning to the UK after redundancy abroad and HMRC6

[confusedaussie]

Hi,

I have a couple of questions about returning to the UK after working abroad in Hong Kong.

The time line.....

2006 -> June 2008 - Worked full time in UK paying regular PAYE tax. Moved in June to Hong Kong, was planned as a permanent move, sold my UK house, car etc...
June 2008 -> Nov 2008 - Worked in Hong Kong paying regular HK tax, but was then made redundant (paid local HK tax on earnings, but not on redundancy)
Jan 2008 -> now - Living in Prague, unemployed but semi-actively looking for work. No earnings since Nov 2008. Haven't been to the UK at all in this time.

I now want to return to the UK to work for a few of years, 3-5 lets say.

My understanding is that I was non-resident in the UK while living in HK and now in Prague (and probably not ordinarily resident) but I have three questions :

1. HMRC6 seems to say that as I ceased my employment whilst overseas, my non-resident status would need to be reviewed. What does this mean ? Reviewed by who ? Does the fact that I have not lived in the UK for a whole additional tax year have any bearing on this review ?

2. I have no income for the last year. Should I move back to the UK after April 5th would the UK have any claim on the HK income I made in 08/09 ?

3. If I transfered any of the money I made while in HK to the UK to buy a house is their any tax implication ?

Thanks in advance for any and all help !

[D1DRL]

I suppose the first question you should ask yourself is did you inform the UK tax authorities you were going to Hong Kong and did you fill out form R85 and send it to your local tax office?
It is a shame you could not have left before the start of the 08/09 tax year, but as you did not remain in full time employment on an overseas contract for at least a year anyway your claim to non-residency in UK may be questioned and reviewed by the Revenue. However, in my view a few factors are in your favour. The first thing is that you paid full HK tax on your earnings and I am pretty positive HK has a double taxation agreement with UK. Secondly, and most importantly, you haven't set foot in UK since June 08, so you haven't been slipping back to run a business in UK, visit Ascot or a gentlemans club etc.etc.as some do. If you sold your house you will have no rental income and probably no other income in UK that is taxable (share divs are OK I believe as they are taxed at source). Also you haven't had any income for the last year so no taxation problem there.
So, you haven't been on an overseas contract for at least a year, but you have been completely out of UK for nearly 3 years for what could be deemed a settled purpose. Hmm. I am not a tax expert, just a tax layman like yourself struggling with HMRC6, but I would suggest if you stay out of UK for a complete 3 years you should be OK, especially considering you paid HK tax on your earnings and you have no earned income or otherwise in UK and no visits to UK at all.
The money you want to transfer for a house in UK has had HK tax paid on it so should be covered by a Double Taxation agreement. If you were still deemed resident in UK it could be treated as a remittance but again I think the DT agreement should cover it.
I am not a tax professional, so don't accept anything I have said as gospel. Probably a tax expert will pull what I have said to pieces, but then again at least I've highlighted some of the anomolies of the non-residency issue.
You NEED proper tax advice here (before you transfer the money) as HMRC6 is very confusing and misleading in places.
Sorry I can't be more helpful and good luck.

[confusedaussie]

Thanks for the advice D1DRL.

I imagine there must be loads of people in my position caught either in Asia or mid-east during the financial crisis and made redundant. I wonder if ceasing employment involuntarily is a mitigating factor ?

Trying to call the HMRC non-resident helpline now, I've been on hold for 1/2 an hour, what a surprise.....

Will post back with what they say (my concern here being what they tell me on the phone might be different to what they tell me when they audit me in the UK!)

[confusedaussie]

Just got off the phone with HMRC.

They seem to think because I sold my house etc.. and haven't set foot in the UK since leaving that I would have been a non-resident from the day I left until the day I return.

She didn't seem particularly sure of herself though....

She also said that there is no double taxation treaty between the UK and HK and that the China treaty does not cover HK.

[maths]

Without wishing to be cruel, the probability of anyone answering the phone at HMRC giving any correct advice approximates to zero. I would not for one minute operate on the basis of advice you received over the phone.

Residence for UK tax purposes has taken a bit of a change for the worse (from the taxpayer's perspective) following a number of recent high profile cases.

In short, I suspect you will be regarded as having remained UK resident throughout your absence particularly if you return prior to
5th April 2012.

What, however, is not clear is whether you are British and whether you lived in the UK prior to 2006?

There is no DTA between HK and UK.

[jc78jp]

maths - why 5th April 2012?

my understanding (please correct me if i'm wrong) is that the key date for the purposes of absence from the UK without full-time employment is 3 calendar years from the date he left the UK? this fits the wording of the HMRCs definition of leaving the UK 'indefinitely', from what i can see

ie in his case June 2011 (if i'm understanding him correctly)

your date seems to correspond to 3 full tax years rather than 3 calendar years... so i take it you believe the HMRC requires 3 full tax years rather than 3 full calendar years absence to qualify for non-residence without the full-time employment? or have i misinterpreted this?

thanks.

[jc78jp]

again, i've had trouble interpreting this '3 years' as well when i've looked at IR20... the exact wording says, for example

2.8 If you claim that you are no longer resident and ordinarily resident, we may ask you to
give some evidence that you have left the UK either permanently or to live outside the
UK for three years or more.

and the 'three years' is referenced in section 2.9 as well

i've assumed that 'three years' means 'three calendar years' simply because, when they mean tax years, they specifically say 'tax years'

but reading maths' last post, it seems i could be mistaken?

[confusedaussie]

Without wishing to be cruel, the probability of anyone answering the phone at HMRC giving any correct advice approximates to zero. I would not for one minute operate on the basis of advice you received over the phone.

Could not agree more !!! Unfortunately, the accountancy firm I paid to give me advice was even worse ! They basically re-wrote my question to them, highlighted some of the possible issues (that I already understood from ir20) and charged me several hundred pounds for the privilege.

Residence for UK tax purposes has taken a bit of a change for the worse (from the taxpayer's perspective) following a number of recent high profile cases.

In short, I suspect you will be regarded as having remained UK resident throughout your absence particularly if you return prior to
5th April 2012.

What, however, is not clear is whether you are British and whether you lived in the UK prior to 2006?

There is no DTA between HK and UK.

I am actually australian, lived there until age 25, then

Sep 2000 - Sep 2003 in UK
Oct 2003 - May 2005 in USA
May 2005 - Jun 2008 in UK (Bought and sold a house)
Jun 2008 - Jan 2009 in HK (Went on a full time permanent contract but made redundant)
Feb 2009 - April 2010 in Czech Republic (Only time not working)

I have a two passports UK and Aus, but I will always return to Australia, I consider that to be my home (domicile) I just like to work overseas. I happily pay full tax while in the UK, just don't want to be double taxed on the HK earnings....

Thanks for the advice everyone !

[maths]

jc78

HMRC6 when referring to "3 years" is a reference to basically 36 months and does not mean tax years; your understanding is correct.

3 years from leaving UK takes us to June 2011; however, a return to the UK in June 2011 involves splitting a tax year (ie 11/12) into a period of residence and a period of non-residence which is concessional treatment (ie not available under the law).Hence my reference to 5.4.12 was intended to preclude the need for such concessional treatment and enhance being accepted as having not been UK resident during the period of absence.

What is clear, however, is that loss of residence is not simply a matter of arithmetic re days in the UK.

In the present case the working full time abroad option does not apply.

It is therefore necessary to prove a distinct break with the UK; on the facts this seems a little difficult certainly if a return to the UK in April 2010 occurs (whether on or after 6.4.10).

An absence of 3 years minimum is I think advisable which based on the above means returning on or after 6.4.12.

Even though you will not have set foot in the UK during tax year 09/10 (which is helpful) this, per se, does not mean non-residence automatically follows (in particular given that during this period you resided in more than one place ie HK and Czech Rep).

If serious money is at stake a formal opinion should be sought although in these uncertain times you might get "on the one hand....but on the other....." !!

[jc78jp]

maths,

I see what you are saying about the split year treatment for 11/12 potentially being a problem (although with no practical effect on the 11/12 tax year if he has no employment/investment income in that tax year before he comes to the UK)

However, I'm not sure why this should impact the treatment of his non-residence when leaving the UK. Since he doesn't get the full-time employment protection, the question is whether or not he gets non-resident status from the day he leaves the UK based on IR20 2.7-2.9 or HMRC6 8.2.

I'm not sure if I agree with your interpretation of the 11/12 split year affecting this critical decision, since the wording specifically states 3 calendar years (no mention of modifications due to split years etc) absence as one of the prerequisites to be considered before even deciding whether or not to apply the other 'clean break' criteria.

So I don't see how his continued absence from the UK from June 2011-April 2012 would have any additional bearing on establishing this prerequisite. If he stays out of the UK for more than 3 calendar years, does this not mean that he has met this important prerequisite as a simple matter of fact?

But then again, the fact that there is even the possibility of disagreement suggests that he should be as prudent and conservative as possible, especially given the ambiguity of the 'clean break' test that will be applied.

The recent Gaines-Cooper decision sure has opened a can of worms in this area hasn't it, at least where the non-residence isn't protected by full time employment.