Contributed by DENNIS SWING GREENE
International fiscal consultant, EuroFINESCO S.A.
The exit: becoming non-resident
JUST BECAUSE you leave your home country, you will still have to take overt steps in order to establish your new status as non-resident for tax purposes, otherwise, you will continue to be treated as if you had never left.
This means that, for example, for UK nationals, if you are PAYE (tax withheld at source and not required to file a self-assessment), tax will continue to be withheld at source in the UK.
Such taxation is not eligible for international tax credits, since you are still seen as UK resident for tax purposes. While you may feel morally assuaged by paying UK tax, the Portuguese authorities will still consider you a tax cheat if you fail to report income in Portugal that, by treaty, is exclusively taxable in Portugal.
If you claim that you are no longer resident and ordinarily resident in the UK, you may be asked to give some evidence that you have left the UK permanently, or to live outside the UK for three years or more. This evidence might be, for example, that you have taken steps to acquire accommodation abroad to live in as a permanent home. If you continue to have property in the UK for your personal use, the reason should be consistent with your stated aim of living abroad permanently.
You will be treated as a non-resident and not ordinarily resident from the day after the date of your departure providing:
• your absence from the UK has covered at least a whole tax year, and
• your visits to the UK since leaving
have totalled less than 183 days in
any tax year, and
• have averaged less than 91 days a tax year.
(The average is taken over the period of absence up to a maximum of four years. Any days spent in the UK because of exceptional circumstances beyond your control, for example the illness of yourself or a member of your immediate family, are not normally counted for this purpose).
Certain tax forms are associated with non-residence. Those leaving the UK and claiming to be no longer resident there should complete form P85, giving details of the proposed stay abroad (or P85(S) on completion of a work assignment). In addition, the self-assessment tax return has a supplementary non-residence page for completion by individuals claiming to be not resident, not ordinarily resident or not domiciled in the UK, and also requests information for double taxation relief purposes (e.g. in connection with claims to be dual resident in the UK and elsewhere). These forms are available to be downloaded from the Inland Revenue’s website:
The booklet IR20, Residents and Non-Residents, is available at the following website:
Split tax year
If you leave the UK during a tax year, and are treated as resident up to and including the date of your departure, you will not pay tax on earnings for the part of the year after you depart, where these are from an employment carried on wholly in the UK.
In the case of earned income other than earnings from employment, the rules are the same as those for unearned income. You will only be charged tax on overseas income you receive through a paying or collecting agent up to and including the date of your departure. However, if you wish to receive overseas income without deduction of tax, after you have ceased to be resident there, you will need to complete a declaration and give it to the paying or collecting agent. You should make the declaration on form PA1 (in the case of a paying agent) or form CA1 (in the case of a collecting agent).
Income still arising in the UK
Rental income – Any profits you make from letting property in the UK are taxable in the UK, even if you cease to be resident in the UK.
Securities – UK tax is not chargeable on interest arising on UK Government FOTRA securities, if you are not ordinarily resident in the UK. FOTRA stands for Free of Tax to Residents Abroad. Where you become or cease to be ordinarily resident in the UK part way through the tax year, no tax will normally be charged on interest payable while you are not ordinarily resident – that is, before the date you arrive here or after the date you leave. UK tax is charged if the interest forms part of the profits of a trade or business carried on in the UK.
Interest – Building societies, banks and other deposit takers in the UK normally deduct UK tax from interest paid or credited to your account. But, if you are not ordinarily resident in the UK, interest should be paid gross and reported by the financial institution in the information sharing provisions of the EU Savings Directive to the tax authorities of your country of residence. You can arrange this by completing a ‘not ordinarily resident’ declaration through your bank or building society.
For further details and/or treatment of other sources of income, consult IR20 Residents and Non-Residents at http://www.inlandrevenue.gov.uk/pdfs/ir20.pdf
Next: The entry: compliance obligations
Dennis Swing Greene is an International Fiscal Consultant for euroFINESCO. Private consultations can be scheduled at our offices in Guia (Albufeira) and Lisbon (Chiado). In the Algarve, call 289 561 333, in Lisbon, call 213 424 210 or e-mail: [email protected]. Visit www.eurofinesco.com