The top 10 tax tips for globetrotters

Moving abroad can be a financial nightmare. Tax expert David Franks continues his exclusive series of articles for Telegraph Expat by telling you how to avoid the major tax pitfalls for expats.

1 Beware of the DIY approach. When you first think about moving abroad, begin by listing in order of preference the countries in which you would be happy to live. Ignore the tax systems for the moment – assume they are all the same. Then discuss your choices with an experienced tax advisor.

You may be surprised to find that the taxes payable in your favourite countries are not nearly as high as you imagined. France is a great example of this: if you know your way around the French tax breaks, you can reduce your tax liabilities to near tax-haven rates. The do-it-yourselfers never find that out.

2 Don’t think that a tax residence of convenience works. It is not the case that if you become a tax resident in a tax haven (such as Gibraltar, Channel Islands or Malta) and spend a short time there each year, it will act as a shield, allowing you to spend as much time in any other country as you want. Relying on a defence of, “But I am a resident of…” when you are spending a lot more time in Spain, for example, is not a defence against being classed as a Spanish tax resident. The double-tax treaty – if one exists – will offer little protection.

3 Don’t think you can hide. If your tax planning relies on your new country’s tax authorities not realising you are there, think again. You always leave a documentary trail of evidence revealing your whereabouts – utility bills, mobile phone records, credit card and bank statements, traffic tickets and so on, as well as possible witness evidence from gardeners, cleaners and the like. Better to have a solid tax plan where all the facts are known and you are safe – and save the sleepless nights.

4 Beware the 90-day rule. The so-called 90-day “rule” for avoiding UK tax residence is misunderstood. Simply keeping out of the country for under 90 days a year does not mean you are no longer a UK tax resident.

The 90-day rule is not a law and is ignored by the courts if they have to decide whether you have remained a UK tax resident. If you spend fewer than 90 days in the UK, but stay in accommodation which is available for your use (you don’t have to own it), then you are at severe risk of being classed as a UK tax resident, unless you left Britain for full-time employment overseas.

5 Do not over-rely on a double-tax treaty (DTT). The DTT is an agreement between the UK and another jurisdiction stating that you cannot be a tax resident of both countries; you can only be resident for tax purposes in one of them. If you are British, and you rely on the DTT, you are 95 per cent likely to be deemed a UK tax resident. It is better to take all the necessary steps to be classed as a non-UK tax resident from the outset, and so never rely on the DTT.

6 Be very afraid of not being tax resident anywhere. Those people who argue they are not tax resident anywhere usually misunderstand the rules. It is true that you do not have to be tax resident somewhere but, unless you know intimately the tax residence rules of each country in which you spend time, you can be caught out.

Many countries deem you to be a tax resident even when you spend fewer than six months a year there. Most tax inspectors simply cannot accept you are not tax resident somewhere in the world.

7 Do not let the system lose you. Often individuals move to a new country and do not bother to report themselves, believing that all is well since no tax authority seems to know about them. As the years roll by, this complacency becomes an increasing problem. It is illegal tax evasion not to complete tax returns, and is a criminal offence in most places. Even if you are still paying UK tax, it does not mean you are exempt from tax in your new country. Usually you have to pay tax in your new country and claim relief under the DTT.

8 Reconsider your UK tax-favoured investments. Because an investment is tax-favoured in the UK, does not mean that it is also tax-favoured in your new country. In most cases, it will not be. You need to re-examine all of your investments, and replace your UK tax-efficient ones with those better suited to your new country.

9 Receiving your 25 per cent tax-free lump sum from your pension. This is very much a UK tax rule, and does not necessarily apply in other jurisdictions. If you are tax resident outside the UK, the chances are that the 25 per cent lump sum will be taxable. If the tax-free lump sum is important, you should consider taking it before you move to your new country.

You should also consider whether or not to move into QROPS (Qualifying Recognised Overseas Pension Schemes). This means you can put yourself outside the UK tax system, avoid having to buy an annuity and avoid having to keep exchanging your UK sterling pension.

10 Do your tax planning early. Do not just move abroad, and then work it out; that’s a recipe for disaster. The sooner you plan, the better.

David Franks is founder of Blevins Franks and regularly advises individuals looking to live overseas on financial and tax matters. Blevins Franks provide The Telegraph’s Expatriate Wealth Service. For all inquiries call 0800 027 7756, email  expatwealth@telegraph.co.uk or visit telegraph.co.uk/expatwealth

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Source: http://www.telegraph.co.uk/expat/8119639/The-top-10-tax-tips-for-globetrotters.html