Don’t bank on the taxman believing you are an expat

Lisa Smith, BA (Hons), CeFA

British expats who want to keep or open a bank account back home are warned they are risking trouble with the tax man.

Many banks will not run onshore accounts for expats, but those that do are suggesting to customers that they should either have a valid reason or take professional tax advice.

The warning follows several high profile non-residency cases won by HM Revenue & Customs (HMRC) that argued unless a British taxpayer has made a ‘clean break’ to live overseas, they could still be considered UK resident for tax purposes.

Although HMRC won the cases, the courts criticised the tax man for offering inadequate guidance to expats about their residency status. This has resulted in rewriting hundreds of pages of advice on the HMRC website.

Now, the guidance suggests that family, property, business and social connections with Britain will be considered when deciding tax residency.

Staying connected

Of the banks dealing with expats, several request a UK address – which is one of the major indicators on which HMRC will base a case for tax residency.

Having a UK bank account is another factor the taxman will look at, but the main focus is on expats who have not really ‘left’ the UK but have a home and other connections to come back to after a couple of years or so working away.

Although the dictionary definition of an expat is someone living abroad for a long period, the tax residency definition is more precise and relates to someone who has left Britain and has no intention of coming back.

Cases that prove the point

In a nutshell, the two key cases won by HMRC were:

  • Lyle Grace – a South African born pilot with a British passport who claimed he was South African. However, Grace worked for British Airways and all his return flights started in Britain, where he kept a house to stay between flights.

The house was his downfall as he had a permanent home in Britain for his personal use – a financial and social connection. Had he stayed in a hotel, the findings of the case could well have been different.

  • Robert Gaines-Cooper – Despite living in The Seychelles for more than 30 years, Gaines-Cooper was ruled tax resident in the UK as he had a home in Henley, educated his son at a private school in England and had a will drawn up in the UK.

The message for expats is to be clear whether you are an international worker still based in Britain for tax purposes or someone who has made that ‘clean break’ and lives permanently abroad with a life overseas that is not connected with Britain.

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