Most Brits enjoy going on their summer holidays as a tourist in a
foreign (usually European) country. How would you fancy extending this
'holiday' permanently? It may not have been something you've previously
thought of, but far from being a new or radical idea, there are many
people who are already doing this, and depending on the nature of
their investments, they are maintaining their capital and much of
the returns on their investments without suffering taxes.
These individuals are known by a variety of names including Fiscal nomads, perpetual travellers and Cyber Gipsies.
How you can achieve this tax free lifestyle is actually pretty
simple.The basic principle is to exploit the residency rules in a
number of countries so that you're not caught by any one country's tax
net. Most people will do this by either travelling continuously or
basing themselves in a handful of countries and only spending a few
months in each. Providing care is taken as to the length of stay you
could simply be treated as a tourist in each country and be exempted
from any requirement to pay income tax.
In practice of course. travelling continuously can usually only be
maintained for a few years due to the other burdens of being so
nomadic, and it is the second option of splitting your time between a
few well chosen countries that is most popular.
The ease of communications and excellent transport links have meant
that this option is becoming more and more popular. It also has a big
advantage over the various tax planning schemes in that it is actually
very simplistic.
In the age of 'Globalisation' even working may not be a problem, as more and more people can work from remote/mobile offices.
Although it's theoretically possible to not be resident in any country,
it is easier to persuade the taxman that you're not UK resident if you
have an overseas country of residence. So what you'll find is that most
people planning on going down this route will get themselves a
residence permit in a tax haven or other low tax jurisdiction (there
are plenty to choose from!). The tax haven would offer a useful base,
although little time would actually be spent there, and the year would
be split between the other favoured countries.
Timing
If you're interested in this option timing is everything. You'll need
to have a good knowledge of the residence rules in your chosen
countries to prevent being classed as a resident. in some countries if
you get caught in the residence trap, its not always as easy to lose
the residence as it is in the UK.
Taking Sweden as an example, if you are resident in Sweden you
are taxable on your world-wide income and capital gains as is the case
in most high tax countries.
However, abandoning Swedish tax residence is not straightforward. You are resident in Sweden if one of the following applies:
Your 'real home and dwelling' is in Sweden; or
Your 'habitual abode' is in Sweden - or
You have no habitual abode in Sweden, but you formerly had a 'real home
and dwelling' there, and you have an 'essential connection' with
Sweden.
'Essential connection' means, for instance, that you have land/ property, a business or a family in Sweden.
Another big hit is that anyone who has spent more then 10 years
resident in Sweden is deemed to remain resident for 5 years after
departure, unless they can prove that they have no 'essential
connection' to the country.
Therefore in order to establish non Swedish residence, you will be looking at surrendering all ties with Sweden.
Similar rules apply to Holland and some countries eg Australia would
also deem all overseas assets to be disposed of for capital gains tax
('CGT') purposes on emigration (subject to various exceptions). There
may therefore be a hefty tax charge to pay on emigration from Oz.
So it's crucial that you have a thorough understanding of the residence rules regarding your chosen countries.
Countries such as the UK and Germany have a pretty straightforward time
limit (eg 90 days in the Uk) that if passed would make you a resident.
This is ideal and would allow you to clearly plan your visits. Other
countries such as France can establish residence if you have an
'habitual abode' there. If possible you want to avoid these countries
that will bring uncertainty and additional risks into what should be a
straightforward tax planning measure.
Many countries treat visitors as residents if they spend more than six
months pa in that country. If you spend less than this you'll be
treated as a tourist and exempt from taxes. These countries are also
ideal as you could easily then split your time amongst three countries
and avoid the tax burden.
Example
Let's say you wanted to stay in Europe and potentially avoid taxes on
your investment income. The first step would be to look at the
residence rules for the UK, Ireland and Cyprus.These are as follows:
UK
You will be regarded as resident in the UK during a tax year if :
· You spend 183 days or more in the UK during the tax year, or
· Although here for less than 183 days, you have
spent more than 90 days per year in the country over the past four
years (taken as an average). You will then be classed as UK resident
from the fifth year.
Ireland
You will be resident in Ireland for a tax year in either of the following circumstances:
If you spend 183 days or more in Ireland during a tax year or,
If you spend 280 days or more in Ireland over a period of two
consecutive tax years, you will be regarded as resident for the
second tax year.
Cyprus
You will be resident in Cyprus for tax purposes if 183 days or more per tax year are spent in Cyprus
Therefore providing you spent less than 90 days in the UK, less than
183 days in Cyprus and less than approximately 140 days in Ireland, you
should not be resident in any of the countries.
What then?
Once you've established yourself as a non resident you'll then need to
look at your investments/activities. Just because your non resident
doesn't mean you'll be exempt from all taxes.
Its important to recognise the difference between the source basis of
tax and the residence basis. Countries will use one or both of these.
The source basis taxes income that arises within a particular
jurisdiction whereas the residence basis will usually ensure that a tax
charge arises in the country of residence (either on the worldwide or
in territorial systems only on locally earned income).
If you move overseas as a fiscal nomad provided you have no other
income that arises in a country that taxes income under the source
basis you should be completely exempt from taxes.
However most countries will tax income that arises within their country
therefore you'll need to be careful as to the location of your
investments.
UK shares are a good option, as you can receive dividends free of
income tax. Uk property would however still be liable to UK rental
income if rented. If you were looking at avoiding taxes in full, you'd
do better to become non resident and then dispose of your UK chargeable
assets free of UK CGT, and keep the capital offshore in a suitable
offshore bank.
Can I do it?
Certainly and there are actually more and more people taking advantages
of these international opportunities. It's not all about saving
money - a large part of the attraction is to improve quality of
life. You don't even need that much money to embark on this, and can
basically set your own budget. If you've got plenty of cash and a
significant, regular income you could make use of some of the first
world countries in Europe/America/New Zealand etc that always rank high
in lifestyle terms. If you've got less cash you could travel on a shoe
string and use China, Thailand, Singapore, Costa Rica etc where the
cost of living is next to nothing - or simply combine the two.
As always take some detailed advice before setting everything up, but
once you know the rules, you can pretty much kiss goodbye to the large
fees from the accountants and lawyers as any future paper work would be
limited.
them ; but it's probably worth
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