When it comes to taxation, residency status plays a crucial role in determining your tax obligations in a specific country. Firstly, It’s important to realise that each country has different rules and definitions regarding tax residency.

And so, it’s imperative to check the rules. Many countries stipulate a 183-day rule. By spending this amount of time in the new country each tax year, you will be considered ordinarily resident.

However, the 183-day test is not a uniform definition of tax residency. Each country is different. You will need to check what you are required to do to become a tax resident.

Leaving the UK – Becoming a non-tax resident

It is essential to understand the concept of UK residency for tax purposes. The UK tax system uses the UK Statutory Residence Test to determine your residency status. You must ensure you conform to these rules. The test helps you determine how many days you are permitted to be in the UK in any given tax year.

Considering various ties such as family, a home you can stay in, work days and previous years you have been a tax resident. It’s not a one-size-fits-all approach.

Circumstances will vary, and so will the number of days permitted. If you move abroad and become a tax resident elsewhere but exceed the number of permitted days in the UK, you could unwittingly find yourself considered a UK resident for tax.

You can find a useful flowchart to the statutory residence test here.

And remember – It is possible to be technically deemed a tax resident in more than one place, so even if you believe your tax residency is obvious, it is important to clarify the rules that apply in each country. Each scenario can be unique, and the specifics of the relevant tax treaties can have a significant impact on your tax exposure.

There are special rules that may apply to you if you arrive in or leave the UK during the tax year. Care should be taken with timing.

The TNR rules apply to individuals who were UK tax residents for at least 4 out of the seven tax years immediately before they left the UK. If these individuals then return to the UK and become UK tax residents again within five years of leaving, the TNR rules may apply.

What the Rules Entail:

Types of Income and Gains Affected:

Exceptions and Special Cases:

There are some exceptions to the rules, such as the sale of an individual’s primary residence, provided it qualifies for private residence relief. Other exemptions may apply based on specific circumstances, so it’s important to assess each case individually.

The 5-Year Rule

Although you may only be liable for income tax in your new country of residence and not the UK – You will need to be non-resident for more than five years in order to escape UK Capital Gains Tax (CGT) on assets owned at the time of departure (there are different rules for property) and which you dispose of after leaving the UK. This five-year clock starts from when your sole UK tax residence ceases. If you become a resident again in the UK during this five-year period, any assets sold after leaving the UK will be taxed in the UK in the tax year that you return.

Split Year Treatment

The rules on split year treatment and capital gains are very complex. Split-year treatment applies to both income tax and capital gains tax. However, capital gains tax can sometimes apply if you are a non-resident in the UK, including during the overseas part of a split year. In addition, if you are only temporarily non-resident in the UK, then capital gains tax can apply on disposals made while non-resident when you return to the UK. If split-year treatment applies to you, you pay UK income tax as a UK resident for income earned in the ‘UK part’ of the year, and you pay income tax as a non-resident for income earned in the ‘overseas part’ of the year. This means that the non-UK income earned in the overseas part of the year is out of the scope of UK income tax.

Split-year treatment can apply when you are becoming a resident in the UK (if so, there will be an overseas part of the year followed by a UK part), or when you are becoming non-resident in the UK (if so, there will be a UK part followed by an overseas part).

To avoid the implications of the TNR rules, you must remain outside the UK and be non-resident for more than 5 full tax years. If you return within this period, income and gains made while you were abroad may be taxed as if you were a UK resident. Understanding the TNR rules and their implications can help in planning financial affairs, especially if there is an intention to return to the UK within a short period. The application of these rules can be complex, and various factors, such as the type of income or gains and the specific timing of the return, can influence how they are applied.

The UK Temporary Non-Residence Rules are designed to prevent tax avoidance by ensuring that individuals who leave the UK for a short period are still accountable for taxes on certain income and gains. Proper planning and understanding of these rules can help avoid unexpected tax liabilities when moving in and out of the UK.

Even if you relocate and plan never to return, avoiding UK inheritance tax as a UK domicile is unavoidable. Unless you are able to achieve a new domicile of choice or you are able to lose a deemed domicile status. So, despite becoming officially tax resident elsewhere and owing any income tax or CGT dues to your new country home, remember that your worldwide estate is still subject to IHT. The rules differ for non-UK doms, and any UK situs assets are liable to IHT regardless of domicile.

Double Taxation Agreements

If you’re navigating the complexities of tax residency or have income in multiple countries, understanding how Double Taxation Agreements (DTAs) affect your financial obligations is also key.

Many expatriates are familiar with Double Taxation Agreements (DTAs), which help prevent being taxed twice on the same income or gain across different countries. In some instances, it could help you to be more tax efficient if you become a resident of a country with favourable tax rules. DTAs are particularly important for those who might be considered tax residents in two jurisdictions or for expats with income or assets in multiple countries. However, there are common misconceptions, such as assuming that DTAs apply automatically, or that one can simply choose where to be a tax resident. In reality, DTAs often require careful application to ensure that tax liabilities are offset correctly between countries.

As stated above, determining where you are officially a tax resident is the first consideration. This isn’t a matter of choice and depends on numerous factors, including how many days of the year you spend in each place, familial ties, business and property ownership, employment, and the location of your primary residential home.

HMRC publishes a complete list of tax treaties. The link to the full list can be found here. DTAs take precedence over domestic rules. There are also multilateral agreements that include more than one country, but events such as Brexit do not mitigate or change the relevance of a DTA.

And when you do move, Managing your tax affairs effectively means claiming relief through the correct channels, submitting accurate tax returns, and properly declaring your income and assets. These steps are essential to maximizingavailable reliefs and avoiding unintentional compliance issues. Proper planning and understanding of DTAs can make a significant difference in managing your finances effectively.

Should you transfer your pensions offshore and use a QROPS?

A QROPS can be a valuable tool for expatriates looking to optimize their retirement strategy. However, the decision to transfer requires careful consideration of both the benefits and any potential costs or tax implications.

In recent years, the decision to transfer to a QROPS has become more nuanced. The removal of the Lifetime Allowance (LTA) has significantly changed the pension landscape for expats, prompting a re-evaluation of retirement planning strategies.

Although the primary motivation for avoiding LTA charges no longer applies, QROPS can still offer several advantages, such as currency flexibility, tax efficiency, and enhanced control over how you access your retirement income. However, it’s essential to carefully evaluate the costs and tax implications of transferring, particularly with the introduction of the Overseas Transfer Charge. Depending on your country of residence and the specific terms of the QROPS, this could impact your overall retirement strategy.

International Pension Solutions for expats

Planning for retirement can be complex, especially when your life and finances cross international borders. For expatriates and those with assets in multiple countries, understanding the nuances of international pension schemes such as Self-Invested Personal Pensions (SIPPs) and Qualifying Recognised Overseas Pension Schemes (QROPS) is important. When considering SIPPs or QROPS, it is essential to understand the regulatory and tax implications in both the UK and your country of residence.

Double Taxation Agreements (DTAs) and local tax laws will play a crucial role in determining the tax efficiency of your pension strategy. Helping to ensure that your retirement strategy is both compliant and optimised for your unique circumstances.

As for the most sought-after residence programs, Portugal’s Golden Residence Permit Program remains a popular choice in 2024 despite ending its real-estate-linked investment option, as are Greece’s Golden Visa Program and Spain’s Residence by Investment Program. In terms of citizenship options, Malta’s Citizenship by Naturalisation for Exceptional Services by Direct Investment, which allows for the granting of citizenship by a certificate of naturalisation to foreign individuals and their families who contribute to the country’s economic development, is a perennial favorite.

The UAE remains the world’s leading millionaire magnet. With its zero income tax, golden visas, luxury lifestyle, and strategic location, the UAE has entrenched itself as the world’s number one destination for migrating millionaires and is poised to welcome a record net inflow of 6,700 this year alone. Singapore and Hong Kong remain favourable jurisdictions for their low-income tax and capital gains structures.

Residency rules overview of popular destinations – How to become tax resident

NB: The following countries have double taxation agreements in place with the United Kingdom. There are specific rules in place for the application of income tax, capital gains tax, dividend tax, wealth tax and tax and reporting requirements should be reviewed. This list is not exhaustive.

How to become a resident

The general Rule considered for the determination of an individual’s tax residence status is one’s physical presence in Greece in any 12-month period. Apart from the actual number of days the taxpayer and/or family spends in Greece, the other crucial factor that can be used for the determination of an individual’s tax residence is the centre of one’s ‘vital interests’. Although the term’ vital interests’ has not been officially interpreted within the meaning of the Greek ITC, prior provisions (in force until 31 December 2013) as well as the related jurisprudence indicate several different elements that might be taken into account by the Greek Authorities in order to establish the grounds for the determination of the above term:

• Ownership of assets in Greece.
• Citizenship.
• Social security registration, either mandatory or voluntary.
• Children’s schools.
• Country where family resides.
• Country where family usually spends holidays.

Notwithstanding the above, an individual’s tax residence status is also determined on the basis of the provisions of a bilateral Double Tax Treaty (DTT) concluded between the contracting states (i.e., the country of origin/home, and Greece) where applicable.

How to become a resident

A person’s residence, domicile, or citizenship is not relevant in determining liability for Hong Kong’s salary tax under domestic law. However, where it is necessary to determine an individual’s residence, such as for the purpose of a CDTA, individuals who (i) ordinarily reside in Hong Kong SAR or (ii) stay in Hong Kong SAR for more than 180 days during a year of assessment or for more than 300 days in two consecutive years of assessment are generally considered as Hong Kong tax residents.

How to become a resident

There are few specific rules relating to residence, ordinary residence, domicile, locality of income, or the remittance of income to Malta. Persons are usually held to be domiciled in a country where they have their permanent home. The locality where income arises is determined in accordance with the category of income concerned, and different criteria may apply to different sources of income. Persons are considered to be ordinarily residents in Malta when they are so residents in the ordinary or regular course of their lives. The remittance of income to Malta is a question of fact.

How to become a resident

According to the Portuguese tax law in force since January 2015, an individual is deemed to be resident in Portugal for tax purposes if one meets either of the following conditions:

• Spends more than 183 days, consecutive or not, in Portugal in any 12- month period starting or ending in the fiscal year concerned.
• Regardless of spending less than 183 days in Portugal, maintain a residence (i.e. a habitual residence) in Portugal during any day of the period referred above, with the intention to use it and keep it as one’s primary residence.

As a rule, the taxpayer will become a resident in Portugal as of the first day of stay in the Portuguese territory and a non-tax resident as of the last day of stay in Portugal, with a few exceptions.

How to become a resident

Individuals are residents in Singapore if they reside there, except for such temporary absences as may be reasonable and not inconsistent with a claim to be resident in Singapore. Individuals who are physically present or who exercise employment (other than as a board director of a company) in Singapore for 183 days or more during the calendar year preceding the year of assessment are treated as tax residents for that year of assessment.

As a concession, a foreigner who stays or works in Singapore for a consecutive period spanning three calendar years (not necessarily three complete calendar years) is considered a tax resident. As a further concession, a foreigner who works in Singapore for a continuous period straddling two calendar years and stays in Singapore for at least 183 days will be considered a tax resident for those two years. This does not apply to directors of a company, public entertainers, and professionals.

Foreigners will also be treated as tax residents if they are issued with a work pass that is valid for at least a year, but their tax residency status will be reviewed based on the tax residency rule above at the point of tax clearance.

How to become a resident

Individuals are resident in Spain for tax purposes if they meet at least one of the following criteria:

• Spend more than 183 days in Spain during a calendar year. In determining the period of stay, temporary absences are included in the count, except when the tax residence in another country can be proven. Special anti-avoidance rules are established for tax havens. Temporary visits to Spain to comply with contractual obligations under cultural and humanitarian collaboration agreements with the Spanish authorities, which are not remunerated, are not included when calculating the 183-day residence period.
• Have Spain as their main base or centre of activities or economic interests. It is presumed, unless proven otherwise, that a taxpayer’s habitual place of residence is Spain when, on the basis of the foregoing criteria, the spouse (not legally separated) and underage dependent children permanently reside in Spain. Spanish PIT law contains specific anti-avoidance rules regarding this matter. Under Spanish law, the concept of a part-year resident does not exist. An individual is either a resident or non-resident and is taxed as such for the entire tax year. However, in certain situations, a person may be a resident for tax purposes in two different countries. This could be the case, for instance, of expatriates working in Spain who are residents in both Spain and their home country. A person who is resident in another country may qualify for a relief or exemption of Spanish tax under DTTs between the home country and Spain. In such situations, the relevant DTT should be consulted to determine the country where the person is. Most DTTs signed by Spain consider the following to be relevant when determining place of residence:
  • Permanent home.
  • Personal and economic relations (centre of vital interests).
  • Habitual dwelling.
  • Nationality.

How to become a resident

All tax-resident individuals are taxed on their worldwide income and wealth. An individual is deemed to be a tax resident under Swiss domestic tax law, if:

• the individual has the intention to permanently establish his/her usual abode in Switzerland, which is usually where the individual has his/her centre of vital interest and is registered with the municipal authorities, or if
• the individual stays in Switzerland with the intention to exercise gainful activities for a consecutive period (ignoring short absences) of at least 30 days or if
• the individual stays in Switzerland with no intention to exercise gainful activities for a consecutive period (ignoring short absences) of at least 90 days.

How to become a resident

On 9 September 2022, the UAE Cabinet of Ministers issued Decision No. 85 of 2022, which provides a new domestic definition and criteria for when an individual shall be considered a tax resident of the United Arab Emirates for the purposes of any UAE tax law or double tax treaty (DTT). The effective date of the new rules is 1 March 2023. A natural person will be considered a UAE tax resident if the individual meets any of the below-mentioned conditions:

• Has one’s usual or primary place of residence and one’s centre of financial and personal interests in the United Arab Emirates.
• Was physically present in the United Arab Emirates for a period of 183 days or more during a consecutive 12- month period.
• Was physically present in the United Arab Emirates for a period of 90 days or more in a consecutive 12-month period and is a UAE national, holds a valid residence permit in the United Arab Emirates, or holds the nationality of any Gulf Cooperation Council (GCC) member state, where the individual:
  • Has a permanent place of residence in the United Arab Emirates or
  • Carries on an employment or a business in the United Arab Emirates.

How to become a resident

Article 1 of Legislative Decree No. 209 of 27 December 2023, entitled ’Implementation of the tax reform on international taxation‘, published on 28 December 2023 in the Official Gazette introduced significant changes to the connection criteria for determining the tax residency of individuals as provided and regulated by Article 2, paragraph 2, of Presidential Decree No. 917 of 22 December 1986.

According to Article 2 of the Italian Tax Code, an individual is considered an Italian resident for tax purposes if, for the greater part of the fiscal year (i.e. for more than 183 days) taking into account even fractions of days,:

• the individual is physically present on Italian territory
• the individual has a ‘residence’ in Italy (habitual abode), or
• the individual has a ‘domicile’ in Italy (principal centre of social interests, e.g. the family).

If one of the above conditions is met, the individual qualifies as tax resident for Italian tax purposes.

Italian tax residents will be subject to taxation for the whole fiscal year (January through December).

Any provision covered by double tax treaties (DTTs) between Italy and other countries shall apply.

How to become a resident

As of 2017, an individual is a tax resident of Cyprus if one satisfies either the ‘183-day rule’ or the ’60-day rule’ for the tax year. For earlier tax years only, the ‘183-day rule’ is relevant for determining Cyprus tax residency.

The ‘183-day rule’ for Cyprus tax residency is satisfied for individuals who spend more than 183 days in any one calendar year in Cyprus, without any further additional conditions/criteria being relevant.

The ’60-day rule’ for Cyprus tax residency is satisfied for individuals who, cumulatively, in the relevant tax year:

• do not reside in any other single state for a period exceeding 183 days in aggregate
• are not considered tax resident by any other state
• reside in Cyprus for at least 60 days, and
• have other defined Cyprus ties.

To satisfy the fourth criteria, the individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. Further, the individual must maintain in the tax year a permanent residential property in Cyprus that is either owned or rented by the individual.

For the purposes of both the ‘183-day rule’ and the ’60-day rule’, days in and out of Cyprus are calculated as follows:

• the day of departure from Cyprus counts as a day of residence outside Cyprus
• the day of arrival in Cyprus counts as a day of residence in Cyprus
• arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus, and
• departure and arrival in Cyprus in the same day counts as one day of residence outside Cyprus.

How to become a resident

Generally, a person present on the Island for six months or more in the tax year is regarded as resident.

However, individuals may be judged to be resident with less than six months’ presence in one year, depending on such factors as the maintenance of a home available for their use on the Island and the frequency and purpose of their visits to the Island and abroad.

Final thoughts

Relocating or retiring abroad comes with its complexities, especially in terms of tax obligations. Understanding the nuances of tax residency, the implications of Double Taxation Agreements, and specific rules like the UK’s Temporary Non-Residence and the Five-Year Rule are crucial to making informed decisions. Whether your motivation to move is driven by lifestyle, family, or financial considerations, planning ahead and seeking professional advice can help you navigate the transition smoothly and ensure you stay compliant with tax regulations.

By taking the time to understand these aspects, you can better enjoy your new life abroad with peace of mind and financial security. It is important that you seek relevant tax advice in your new planned place of abode and determine your tax position in the UK.

If you’re managing investments across the globe, you’ll want to be sure your investments are structured in the best way possible. With expert guidance, you can navigate complex rules effortlessly and focus on growing your wealth with confidence.

Ready to take the next step? Start planning your secure financial future—contact me today and put your strategy into action!”