moving abroad

[Charlie]

I shall be moving to Cyprus in a few months. Cyprus has a double taxation treaty with the UK so that income, including a pension, brought to Cyprus is not subject to UK income tax (unless it is property rental income). Several issues and questions arise as to the most efficient way to manage my financial affairs.
1. I am keeping a property in the UK as I intend to return for visits. As I intend eventually to apply for non-domicile status would it be advisable for this property to be sold to and held by an offshore trust/company?
2. The 90 day rule applies so that I am not taxed as a UK resident. Is the onus on me to prove that I do not spend more than an average of 90 days in the UK? If so, how do I that? I have been told that I should keep airline boarding passes, but I fail to see how that proves anything.
3. After I have moved to Cyprus I will still be earning fees from UK companies for writing and consultancy. However the actual work, ie the writing, will be done in Cyprus and my only contact with the people commissioning my work will be by email. Can UK income tax be legitimately avoided by the fees being paid into, say, an offshore account?
4. If the answer to (3) above is no, but if my income is below the level (ie after allowances etc) at which any UK tax would be payable, would I still have to make a UK tax return each year?
5. Can I pay for the overheads for my UK property from an offshore account?
6. My tax accounting year ends on March 31. However I am moving at the end of October. Can I apply to do an early tax return so that I can wind up my affairs completely before I leave the UK – or is there no point in doing so?

[demetris]

As you are not stating, I am assuming all along in my answer that you have lived in the Uk for many years. Also, my answers are restricted by the fact that I do not have the full facts before me.

Since you have been UK resident for , transferring the property to an offshore vehicle to take advantage of non-domicile rules will create the following problems: First, it will create a liability to UK capital gains tax at market values as the asset is situated in the UK; domicile is irrelevant for UK situated assets. Also, there will be a liability to UK inheritance tax on the offshore shares as you are deemed UK domiciled for this tax (Uk resident for more than 17 years out of the last 20).

A UK resident can only become non UK-resident for Capital gains tax if he stays abroad for 5
complete tax years. Then, you will be able to sell the property situated in the UK and incur no capital gains tax liability in the UK.

For an individual to lose his income tax UK residency status, he has to be abroad for a complete tax year. After that, he mustn't spend in the UK more than on average 90 days over 4 years or more than 183 days in the tax year. The proof can be on passport stamps.

Regarding income from consultancy, it will be taxable in the UK as long as it arises in the UK. Paying the income into an offshore account does not make it exempt from Uk income tax.

Of course, if the total income in a tax year is below personal allowances or is taxed at source, there will be no tax to be paid by the taxpayer. But, nevertheless, you have to fill in a tax return if you are a self employed person or a company director.

If you cease trading in October 2003, the tax return for the tax year 2003/04 has to be filed with the Inland Revenue by 31 January 2005. You cannot file the tax return for a particular tax year prior to the end of that tax year.

I hope this helps. At your disposal if you require more information and ways to minimise your taxes.
Demetris Savva BA FCCA
http://www.tax-accounting-london.info
constantinesavva@accamail.com

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[Charlie]

Demetris, thank you for your full and helpful answer. One or two questions arise. But first, to clarify, yes I have lived in the UK for many years. And I bought my UK property very recently, so CGT would not be an issue.

When you say “For an individual to lose his income tax UK residency status, he has to be abroad for a complete tax year” do you mean that I would not be able to visit the UK AT ALL during that first tax year? If I move abroad on 1 October 2003 would that mean that I could not visit until 6 April 2005? However, if I have misunderstood you and in fact you mean that I couldn’t spend in the UK more than on average 90 days a year does that period start from 1 October 2003?

Passports are no longer stamped in either country when travelling between UK and Cyprus, so what proof would I need or could I provide of my limited stays in the UK?

Regarding income from consultancy, you say that it will be taxable in the UK as long as it arises in the UK. But what does “arise in the UK mean”? Is it where the company paying the fee is based (UK) or where I do the work (Cyprus)?

[demetris]

Dear Charlie,

If you sell or gift the property, you will have to pay CGT unless you make a capital loss. If the property is your main residence, it is exempt.

In the absence of passport controls, anything else in the form of third party documentation that can prove where your physical presence is at any one time will do.

The word “arises” means where the income is originally generated, where the source of the income is and not where the recipient is physically present.

Regarding the residence question, you need to know that there is no legislation on this issue but only court cases. To lose your UK residency status, It may be enough if you stay away for a complete tax year (in your case from 6/4/4-5/4/5 to count as non-resident in 2004/05) and provide evidence that your departure is permanent. Once you lose that status, the 90-day or the 183-day tests apply.

I hope I have answered your questions. If you are still unclear on anything or you would like me to help on anything, please send me an email at constantinesavva@accamail.com.

Demetris Savva BA FCCA
http://www.tax-accounting-london.info