Most people would like to think that they know which country they live in, but it’s surprising the number of ex pats who are not sure.
For most people who live in the country of their birth, this is not a problem, but for ex pats and international workers, the tax you pay depends on where you live.
And closely related to tax comes whether you can benefit from transferring your UK pension in to an offshore QROPS scheme.
The rules for tax residence are simple – most people think the 183-day rules about how much time they spend in the UK count them in or out as UK residents, but they are wrong.
The real issue is where you intend to live when you leave the UK and whether you have broken your ties with the country.
This means living in a country is more than staying there for a while. You can live in a place without putting down roots.
Breaking ties and becoming a non-resident means giving up your UK home, transferring your financial affairs overseas. Little things like cancelling your TV licence count for a lot.
The rules have recently come under stringent tests in court as HM Revenue and Customs has pursued ex pats for unpaid tax. The two most notable cases involved airline pilot Lyle Grace and businessman Robert Gaines-Cooper.
Although both have lived overseas for many years, they retained a home in the UK that the taxman argued meant they had not permanently left the country. The conclusion was then that as Uk residents, they owed unpaid tax.
Making a mistake over residence could also be expensive for anyone making a QROPS pension transfer. The schemes are only open to non-residents or people intending to become non-resident.
If a ‘non-resident’ is later found not to be so, then any pension transfer is against tax rules and will incur a penalty of 55% of the transfer fund value.
So, it’s important to know exactly where you live – and leaving the decision to chance can cost a lot of money.