Working abroad – can it land you an own goal?

Whilst the eyes of many are currently on the Euro football tournament, behind the scenes the usual merry-go-round of transfers of league players and managers continues, accompanied by the occasional piece of drama when something goes wrong.

The latest commotion has been caused by Tottenham Hotspur’s attempts to secure a new manager. This vacancy appeared to have been filled by former Roma manager Paulo Fonseca, before news broke that the deal had fallen through, possibly, some sources have suggested, because of a tax issue that meant that the tax breaks that were available to Fonseca in Italy would not have been applicable in the UK.

Whether or not the Spurs tax story is accurate, it is an interesting example of Tax Residency and Domicile work, and the need to take professional advice before taking on work in another country. The past eighteen months have seen many people re-evaluate their life plans in all sorts of ways, including moving or working abroad. But while it may be tempting to dream of doing your office job whilst reclining by the beach in the Caribbean, the reality is incredibly complex, and will need careful consideration. Two of the main considerations are, firstly, whether you are Non-UK Domiciled (Non-Dom) and, secondly, whether you are considered UK-resident for tax purposes.

Non-Doms (very broadly, an individual whose father is not UK domiciled) who have lived in the UK for fewer than 15 consecutive tax years, have the ability to choose how their overseas income is taxed in the UK. They can choose between the “Arising Basis” or the “Remittance Basis”.  Put simply, this is the choice between taxing worldwide income and gains in the UK as an when it arises, compared to taxing worldwide income only when, and if, it is remitted into the UK. This choice is unavailable to UK domiciles and Non-Doms choosing the Remittance Basis may have to pay an expensive charge for the privilege of doing so.

Following the domicile rules, the next step is to establish if an individual is UK resident for tax purposes. HMRC introduced the Statutory Residence Test (SRT) which aims to provide individuals with certainty about their residence status and this is important because individuals who are UK resident for tax purposes and UK domiciled are taxable in the UK on their worldwide income and gains, whereas Non-UK residents, irrespective of domicile, are only taxed in the UK on their UK arising income, and certain gains.

Those wishing to be Non-UK resident for tax purposes need to meet certain conditions if they want to be automatically exempt from paying UK taxes on their overseas income. Broadly, this will require they either:

• Work full-time abroad, and spend fewer than 91 days in the UK during the tax year; or
• Spend fewer than 16 days in the UK during the tax year; or
• Spend fewer than 46 days in the UK during the tax year, so long as they were Non-UK resident in the three tax years prior.

Being present in the UK for 183 days or more makes you automatically UK resident for tax purposes, and if you are not automatically overseas resident for tax purposes (as described above), you would need to refer to the Sufficient Ties Test and possibly a tie-breaker clause in the Double Taxation Agreement. Even if foreign income and gains have already been taxed in another country, they can still be taxable in the UK for those that are UK Resident and/or Non-UK Domiciled and claiming the arising basis. You must therefore declare all of your foreign income and gains on your Tax Return. In many cases, some relief can be given in the UK for foreign tax paid on foreign income and gains (under the provisions of Double Taxation Agreements with many other countries or via unilateral relief). There are also special rules for income from pensions, rent from property and certain types of employment income.

The information above is explained in greater detail in the guidance here

If you are an individual with high earnings and considering where to live, work or invest it may of interest to compare some of the current hot-spots for the highest rates of income tax. Based on 2021 data from the OECD these are

1. Portugal 61.3%
2. Slovenia 61.1%
3. Belgium 58.4%
4. Finland 57.5%
5. Sweden 57%
6. Japan 55.9%
7. Denmark 55.9%
8. France 55.4%
9. Netherlands 52%
10. Ireland 48%

As mentioned, Tax Residency issues for both UK and Non-UK -Domiciles are one of the most complex and difficult areas of tax legislation. If you are thinking of working, investing, studying or retiring abroad it is vital to ensure that you are properly aware of the financial implications of your decision. Even highly paid football managers can get it wrong, so it’s very much in your best interests to talk to an independent tax professional.