Chapter 13 - Becoming a Tax Nomad
Just as it is possible to be resident in more than one country, it is also possible to be resident in none. Such individuals are commonly known as 'tax nomads'.
If you become a tax nomad, you would still be liable for income tax on any income generated within a particular country, but capital gains tax usually depends on the concept of residence.
In order to achieve your objective and pay no capital gains tax, you will need to ensure that you have a thorough understanding of the relevant countries' domestic tax laws, as well as the impact of any double taxation treaties.
The definition of residence varies significantly. Some countries, such as the UK and Ireland, have an objective test, which is determined in part by the number of days spent within the country.
Other countries, such as France and Germany, have a more subjective test that is based on where an individual's 'centre of economic interest' is located or the place of 'habitual abode'.
Example
Jack spends his time during the tax year 2013/14 as follows:
- 27 days in Ireland,
- 84 days a year in the UK,
- 110 days in the USA,
- The remainder of the year on holiday in the Maldives.
He may not be resident in any of the above countries for tax purposes and this would allow him to avoid a potentially large gain on a disposal of his investment property. Note that in terms of establishing non UK residence he would need to look at the sufficient ties test and ensure that he had two (or fewer) ties -- assuming he can't establish non residence under any of the other categories.
Moving abroad may offer an opportunity to wash out gains in your investment portfolio tax-free, since it may be possible to arrange your move, so that for a period you are 'resident nowhere'.
For example, if you move to Spain and leave the UK on 5th April 2013 and travel via France, arriving in Spain on 10th April 2013, any capital gains you realise during the four-day 'tax holiday' between these dates could be free of capital gains tax (unless you resume tax residence in the UK within five years), providing you avoid being classed as Spanish resident for 2013.
Whilst becoming a tax nomad may not be a suitable option long term, it could prove useful for one or two years -- it allows you to structure your affairs before taking up residence in a country of your choice. The general rules relating to losing your UK residence still apply though, and the fact that you don't have an overseas country of residence can make it more difficult to establish non-UK resident status, unless you have strong evidence to support the permanent departure from the UK.
A safer option if you are relying on this to avoid UK capital gains tax may be to establish treaty residence in a country that has a double tax treaty with the UK, but that also doesn't tax the gain. This should then make it much easier to avoid tax on the disposal.
You may also be interested in this article: Tax residence for a fiscal nomad - before and after 6 April 2013
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About the Author
The Author of "Non Resident & Offshore Tax Planning is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.