Hold Over Relief / Resident Status?

[Tim Good]

I wonder if anyone here understands the HMRC residency tests and might help with regard hold over relief after receiving shares? I wish to circumnavigate and take my time over it. I.e. more than a year without having to return to the UK.

Here are some facts:

1. My father passes shares to me in my family business as he is aging and wishes to do so in case he becomes incapable of making significant business decisions. I don't personally work in the business on a daily basis.
2. HMRC don't charge me capital gains tax on receiving these shares and give something called "hold over relief".
3. The conditions of the relief is that I remain a UK resident for 6 years without permanently emigrating.
4. The HMRC uses a residency test to determine if someone has emigrated.
5. This test means I have to spend a min number of days in the UK, for me 91 days minimum, possibly 180 days depending how the test is interpreted.
6. If I don't adhere to the min days then I become non resident, and I receive a huge tax bill for tax on the shares even if they haven't been disposed or sold.
7. Said tax bill is so high that our 180 year old family company would have to be sold in order to pay it.

The dilemma:

A: HMRC admits the residency test isn't intended to catch me, someone that wishes to go traveling and has not permanently emigrated but they also say i have to abide by their residency test.

B: I don't want to return to the UK for at least 91 days as I disagree with flying and the environmental impact. Plus there are going to be situations, i.e. in the pacific when flying back would be difficult.

Note: I have taken professional financial advice on this but the advice seems to differ depending on who I ask, including the HMRC. This is sensitive issue for me that has come about due to the untimely passing of my brother who was MD of the business, so please don't troll me on the basis it's a good problem to have. I'm just looking for interpretation from anyone who has acquired shares and then decided to sail around the world within 6 years of doing so. There much be a good deal of people that have done this.

 

[AndrewB]

Don't know if this is any help but while I was away for 8 years cruising I applied to HMRC for tax relief and was told that as I was not 'de jure' resident in any other country I was still, for tax purposes, resident in Britain - even though I had no address.

At the same time, while paying full income tax, I was denied all benefits. Had I come back to Britain for NHS treatment, doubtless I would have featured on the front page of the Daily Mail as a "health-care tourist scrounger".

The answer may be to apply for residency in a country where there will be no tax consequences for doing so, and you can set up an accommodation address. Portugal has been mentioned in this regard.

 

[GHA]

Don't know if this is any help but while I was away for 8 years cruising I applied to HMRC for tax relief and was told that as I was not 'de jure' resident in any other country I was still, for tax purposes, resident in Britain - even though I had no address.

And just in case the waters aren't muddy enough, I was told the exact opposite by the revenue & was non resident anywhere for years.
You might just have to go with whatever that office decides that day......

 

[PlanB]

It's not an ideal solution, but consider the implications of maintaining all UK links - address, banks, paying your tax etc and just not owning up to being away. I think this is something a lot of long term liveaboards do.

 

[KellysEye]

We were away saiiing for six and half years and became non resident after four years.

 

[steveej]

The statutory residence test is a relatively new test that came in about 4 years ago. Prior to that, your tax residence position was based on time outside the country but that is not the case any more as the new test takes account of connection factors to the UK. The more of these you have, the fewer UK days you need to remain resident. Do a quick google for 'statutory residence flow chart'.

In terms of income tax, as a UK domiciled and UK resident individual you are taxable in the UK on your worldwide income. It may also be taxable elsewhere if it is sourced elsewhere, or you become resident elsewhere. If you are not UK tax resident under the test, then you are only taxable in the UK on your UK sourced income.

HMRC's focus is therefore on individual's trying to cheat the system to become non resident rather than the other way around.

For capital gains and inheritance tax, the rules are much more complex so I would advise that you seek specialist advice especially when it comes to gifting shares. Your local high street accountant is going to struggle with this so you need to go to a larger (more expensive) firm for this advice.

As a general rule, periods of non residence tend to be more tax advantageous than periods of residence, but this may not be the case in your situation hence the need for specialist advice.

You will not get any help from HMRC as they have been underfunded for many years and in their view the onus is on you the tax payer to make sure your taxes are in order. Do not waste your time trying to call them as you will simply be put through to a call centre worker which the absolute minimum of training.

And as someone above has mentioned, there are many people who are totally ignorant to the rules and it is never an issue i.e. don't claim to have left, your just on an extended holiday etc.

In response to someone else's point, state benefits can be affected if there is a gap in your NIC payments, unless you are fully paid up and pension age but this is separate from tax. If you are not working, you are not paying any social security therefore you can lose entitlement to things like Job seekers allowance, bereavement benefit etc. NHS treatment is available if you live in the UK. If your not living in the UK then their opinion is you should be getting your health treatment elsewhere.

 

[steveej]

https://home.kpmg/content/dam/kpmg/pdf/2016/01/statutory-residence-test-flowchart.pdf

 

[steveej]

Are all homes in the UK? If so, could bring the UK days down to 30.

 

[DownWest]

Jus talking to some friends who live here, but do not own here. They just bought a place in UK, as in a few days ago and did not own any other property in the UK. Some of the questions wre interesting..As in, do you know, in the last year, any body in a political position.? It appears to be a catch about inside dealing, but has anybody heard about something similar?

 

[macd]

In terms of income tax, as a UK domiciled and UK resident individual you are taxable in the UK on your worldwide income. It may also be taxable elsewhere if it is sourced elsewhere, or you become resident elsewhere. If you are not UK tax resident under the test, then you are only taxable in the UK on your UK sourced income.

You seem to know what you write about, Steve. That being so, you'll be aware that few broad generalisations on income tax stand up to scrutiny.

Yes, the UK (and many other countries) claim a right to tax on worldwide income. They (and pretty much everywhere else) also claim that rental income is taxable solely in the country in which it is earned. The two are clearly incompatible. In most cases this issue and many others are decided by double taxation treaty. The UK has such treaties with well over half of all countries.

If you are not UK resident but have income from the UK, that income may be taxed in the UK or country of residence, depending on the type of income and the provisions of any double taxation treaty. Even something as apparently simple as pensions can be treated in a variety of ways, depending on the precise terms of the treaty and the type of pension. (One of the distinctions is whether a pension is "government" or "other", which seems simple enough except that what constitutes a government pension can be arbitrary in the extreme. An astonishingly long and arcane list defines them.)

For these reasons and more, in all but the simplest cases expert counsel should be sought. In the meantime, here's the most recent summary of all the UK's double taxation treaties: https://assets.publishing.service.g...ent_data/file/710099/DT_Digest_April_2018.pdf

 

[steveej]

you have to look at the domestic legislation in the home and host countries concerned.

If there is double taxation on the income or gains then you need to look to the international rules (i.e. the treaty) to see which country has principal taxing rights and which country will grant tax relief.

Some countries honour their treaties others don't.

In any case, we are drifting from the OP's questions. He needs to get comfortable with how his UK tax residence status affects the holdover relief and what he needs to do to either break UK tax residence or remain UK tax resident.

Provided he moves around a lot on his circumnavigation it is unlikely he will become taxable elsewhere unless he holes up somewhere in a spanish marina for months on end.

 

[Richard10002]

I wonder if anyone here understands the HMRC residency tests and might help with regard hold over relief after receiving shares? I wish to circumnavigate and take my time over it. I.e. more than a year without having to return to the UK.

Here are some facts:

1. My father passes shares to me in my family business as he is aging and wishes to do so in case he becomes incapable of making significant business decisions. I don't personally work in the business on a daily basis.

My first thought is that, if you can remove the cause of the issue, that is possibly the solution.

You say that your father is ageing, and wants to pass on the shares because he may not be able to make business decisions in the future. You dont work in the business on a daily basis, and plan to be out of the country for more than a year.

1) Firstly I wonder how giving you the shares helps with the decision making stuff, as you are not there to make any decisions. Why/how does the ownership of the shares relate to the need to make business decisions. Even if you receive the shares, how do you plan to be involved in the decision making if you are out of the country on the high seas for over a year?... I could go on, but you will get the gist.

2) You suggest that your father is concerned that his decision making ability is likely to deteriorate, but you only say, "in case". How likely is it that this will happen either during, or before, the end of your trip. Presumably he will sense that it is happening, before he loses said capability. Not wishing to be morbid but, apart from the fact that any of us could die at any time, is your father likey to pass away before you return?

My point is that the transfer of the shares could be delayed until either you return from your trip, or an appropriate number of days before your return to the UK at the end of the trip.

Having postponed the transfer, if your father were to sense an absolute need to transfer the shares before the above, cross that bridge when it comes.

I keep wondering why transfer the shares to someone who has had, and will have, no involvement in the business, and wont be in a position to have any involvement for at least a year or so, if the reason for the transfer is an inability to run the business. Is this the real reason?