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What’s the best tax planning advice for leaving the UK?

Contractor’s Question: I’d like some planning advice on leaving the UK, if only to check that my plan is actually sound.

I’m an EU citizen, living in the UK for about four years now, thus I have EU ‘pre-settled status.’ Currently I’m contracting for a client from the EU, on a contract which is determined as inside IR35 in the UK. So I’m paying about 50% of my gross in taxes — that equates to about £70,000 a year!

Since I have EU citizenship, I can move to somewhere like Bulgaria and roughly save £50,000 a year in tax, which I plan to do. But I would really like to get my ‘settled status,’ therefore I’m prepared to wait for another year. So my plan is three-fold:

  • Wait until I have 4.5 years in the UK, close my limited company and move to Bulgaria, or Romania. 
  • After 0.5 years abroad, I should still qualify for ‘settled status’ (due to 5 years continuous residency, that shouldn’t be interrupted by the < 0.5 years abroad). 
  • When leaving the UK, I do have a Vanguard ISA and SIPP. I intend to obtain advice on what to do with these investments. 

In addition, regarding National Insurance, I assume I can pay some NICs while I’m abroad? Also, am I correct to assume that if I leave the UK, say, in August 2023, then I can just tell HMRC that I’m no longer tax resident and that’s that?

Finally, I assume there won’t be a problem with most of the UK banks, notably NatWest, which I’ve heard is accepting of foreign residents. Incidentally, I do plan to pay for a post-box just in case the bank isn’t accommodating. What though, if anything, am I overlooking?

Expert’s Answer: Thank you for your range of questions. Now let’s see how we can help you!

First and foremost, be very careful not to do anything that could threaten your eligibility for obtaining settled status in the UK.

What are the conditions for settled status?

The conditions for settled status from the UK government website tell us:

You will need to show five years of continuous residence in the UK. Five years of continuous residence means that for five years in a row, you’ve been in the UK, the Channel Islands, or the Isle of Man for at least six months in any 12 months.

You must show that you — or your family member from the EU, Switzerland, Norway, Iceland, or Liechtenstein — were living in the UK by 31st December 2020.

Some absences of more than six months in 12 months will not count as a break in your continuous residence, which are:

  • one period of up to 12 months for an important reason — for example, childbirth, serious illness, study, vocational training, an overseas work posting or because of coronavirus
  • compulsory military service of any length
  • time you spent abroad as a crown servant or as the family member of a crown servant
  • time you spent abroad in the armed forces or as the family member of someone in the armed forces
  • Working in the UK marine area

Get financial help, potentially from a Bulgarian lawyer/accountant

Regarding your investments, it would be best to discuss with a competent financial adviser the pros and cons of your ISA and SIPP, as you may well wish to retain them even though there will be no UK tax advantages.

However, in many countries in the EU, if you have been contributing to pensions elsewhere, they may extend tax advantages to you on your contributions. Again, you should consult a local expert (an in-country adviser) on this matter.

As to your national insurance question, the general rule is to pay social charges where you work. If you are no longer working in the UK, then NICs are not usually due, and your option here is to make voluntary contributions.

Talk to the UK taxman

For more information about your situation, I would actually advise that you should contact HMRC, as they will guide you on the contributions you can make and what benefits you can derive. Any adviser would only be second guessing what the tax authority would permit or approve of here.

But to this adviser, the most obvious question arising from your possible stoppage in national insurance contributions, is how it might affect your UK state pension. Your age or pension circumstances are not detailed, but continuing your contributions could prevent you from throwing away your pension entitlement in the UK.

If you want to pay NI in the UK rather than in Bulgaria or wherever you settle, you can apply in your company for an ‘A1’ that should allow you to keep paying in the UK and not pay in Bulgaria. Again, assuming you qualify, you need to weigh the relative benefits of doing so. If your stay in Bulgaria is brief, this ‘A1’ option may be to your advantage.

Notifying HMRC when you leave the UK

Penultimately, if you leave in August, you should indeed advise HMRC that you are leaving the UK. The Revenue would then decide if you are no longer a tax resident.

But do bear in mind the impact that leaving may have in obtaining settled status. If you need to complete a tax return for the year when you leave the UK, you must tell them on that very self-assessment form. Otherwise, you can make this declaration to HMRC by completing form P85 ‘Leaving the UK – getting your income tax right’. You can download the form from .gov or complete it online.

In terms of UK banks, many are unhappy with holding accounts for non-residents, and you should speak to your bank about this in advance of executing your plan. You may find that NatWest in the Channel Islands would be a better option, as the arrangement you want is normal for that specific branch.

Don’t bank on your banking understanding (or your reasoning for quitting the UK)

Be aware though — even they (and I only mention NatWest as you enquire about the bank) will have minimum deposit requirements to open an account with NatWest Channel Islands. An alternative you could explore might be to use HSBC, which at the time of writing operates ‘ex-pat’ accounts for UK expatriates. But I caution you — simply using a post-box is not playing straight with your bank, and they may terminate your banking relationship if they find out what you have not disclosed to them.

Very finally, and sorry to disappoint, but I would question your reasoning for leaving the UK, bearing in mind that settled status clearly means something to you. Be aware that, if you intend to obtain settled status and then not return to the UK, you cannot flit in and out of the country, and it seems an extreme faff to do so based on your contracts’ IR35 statuses.

An alternative way forward would be for you to find a means to work outside IR35, which might include working for a ‘small company’ client or via a small consultancy. If there isn’t a ContractorUK article covering what you want to know in relation to working with, alongside or outside the legislation, or how you might navigate either it or the off-payroll rules, email ContractorUK’s editor and they will no doubt be obliging.

The expert was Kevin Austin, managing director of overseas contracting advisory Access Financial.

Tuesday 18th Jul 2023