HMRC, the UK tax authority, is working to ensure British expat taxpayers continue to pay tax on their UK affairs.
It recently released new figures that demonstrate its increased co-operation with foreign authorities overseas, leading to a considerable rise in levels of expat tax collected.
In 2017 HMRC made 1,006 requests to overseas tax authorities which resulted in an additional £5.7 million of tax being recovered, an increase of £3.7 million on 2016 and almost treble the amount collected five years ago.
Heather Miller, Senior Tax Manager at accountants TWP, explained that many former British residents now living overseas may not be aware that the homes and investments they hold in the UK could still be taxable despite them living in a new country.
“Under the current tax rules, non-residents, such as expats, only pay tax on income gained in the UK,” explained Heather.
“So a British expat living permanently overseas will still be required to pay tax on a UK investment or buy-to-let property, regardless of the fact that they no longer live here.”
A person who lives abroad for less than half the year remains liable to pay UK tax on money earned abroad as well as UK income.
Heather added: “More often than not expats are caught out by the Revenue because they simply aren’t fully aware of the rules or because they feel that they have somewhat cut their ties with the UK’s tax authority, but unfortunately that is not the case.”
Most expats are likely to be breaking the law unwittingly because they do not understand their residency status under the Statutory Residence Test. This can impact expat contractors as well as those retiring abroad. The rules are complex and it is not simply a question of ensuring you are out of the country for 183 days (where you are at midnight determines your location for that day) as there are other factors, including the ‘sufficient ties’ test that need to be considered to determine your residence status.
HMRC have a team that take advantage of the Mutual Assistance in the Recovery of Debt (MARD) arrangements with countries inside and outside the EU. The arrangements are reciprocal and enable HMRC to obtain information, serve legal documents and recover a tax or duty debt.
The Daily Telegraph reported that a spokesman denied that there had been a recent “crackdown” and said the amount collected could differ from year to year. He added: “We will not hesitate to use all legal means to collect taxes that are owed.”
TWP point out that fines for failing to pay tax in the UK could be up to 200 per cent of the tax owed. Heather therefore advises expats and relatives of expats to check their financial affairs and UK income to make sure they aren’t investigated and penalised by HMRC, which she says can be a stressful and expensive process.