(Independent Financial Advisers)


It is a sad fact that wherever you move to around the globe, you cannot hide from the Inland Revenue. As a UK expatriate you may have left home for a fixed short term contract, or for an indefinite but longer period of time, or you may have flown the nest intending never to return. But whatever your resolve, the UK's Inland Revenue has reserved a special category just for you. And it is only sensible to get to grips with establishing your defined tax status and complying with it. After all, better a label than a bill.

Essentially, an expatriate's tax status will fall into one of five categories:-

1) Resident: Based upon the amount of time spent in the UK on an annual basis. If an individual spends 183 or more days in the UK in any one tax year he or she will be classified as resident and will pay UK tax as a normal resident.

2) Ordinarily Resident: This is a longer-term concept where the Inland Revenue will take a view over three to four years on where an expatriate habitually resides. If an expatriate is habitually resident in the UK for 90 or more days in any one tax year then the category is ordinarily resident and such status impacts upon tax liabilities accordingly.

3) Not ordinarily resident: This category applies to an expatriate who works overseas and whose intention is to work and reside overseas and who will not be spending 90 or more days back in the UK. If the intention to remain overseas can be proved before leaving then the expatriate earns this status from the day of leaving the UK along with the accompanying tax breaks.

4) Not resident: A definite and sought after status applied to an expatriate who conforms to the rules of working and living overseas and not returning to the UK for any period of time which could throw doubt on that intention, Not resident means not liable to pay tax on income or capital gains, provided these are as offshore as the expatriate.

5) Domicile: Any UK citizen, wherever based, remains UK domiciled unless permanently emigrating through official channels. Essentially, your domicile is linked to the country where your roots are and this status clings to you for life, catching up on your death when inheritance tax is due.

Although it may appear that there is little difference between some of the categories, do not be fooled. For instance one of the main differences between ordinarily resident and not ordinarily resident is that under the former category an expatriate is still within the capital gains framework, but under the latter category there is no liability for capital gains Tax.


The Inland Revenue and Your Tax Status

Expatriates must clarify their tax status with the Inland Revenue. On departure, or as soon as can be arranged if already overseas, a form P85 must be completed, this covers all the technicalities of date of departure, intention of remaining overseas and assets (such as property) left behind in the UK.

The answers provided will be what determines your new tax status.  If you are uncertain as to the length of time you will be posted overseas, it is advisable to submit the form with an accompanying letter, or copy of your contract from your employer which confirms or indicates the employment period will be for a time long enough (and always for at least one full tax year) to warrant being classified as either not ordinarily resident or not resident.

There are several incentives for such tedious form filling:-

    First, having confirmation from the Inland Revenue of your new tax status tidies up your file and records this period of time in a way which will not catch up with you late one.

    Secondly, such confirmation can be useful when dealing with the tax authorities in your new country of residence.

    And finally, the really good news, very often new expatriates are eligible for a tax rebate on tax already paid in the tax year of departure.

Once the P85 is filled in and posted off be sure to make a diary note to check that the Revenue has actually written back with a confirmed reply of status. All too often the are just filed by the Revenue and the expatriate is left bereft of the vital confirmation of status.

Your Tax status is the foundation of all your tax liability, it is like building a house, if you don't have the foundations your house will fall down and it is exactly the same if you don't know your tax status or if that status is confused - you cannot plan properly.

Whilst the Inland Revenue are unable to handle P85 forms by e-mail transmission please feel free to contact us for a snail-mail copy and any advice you may need.