British expatriates who still have connections with their homeland may face a challenge over their residency that could put them at the mercy of the taxman, say international accounting and consultancy firms. Under the new guidance, UK tax authorities will scrutinise more closely the non-resident status of British citizens living overseas, said Paul Gambles, managing director of MBMG International Co. Until last year, British expats could claim non-residency status if they spent no more than 91 days a year in the UK. "Any UK expats could be affected [by the new rules]. The number of days spent in the UK is only one factor now. They're going to look at all other things about the way you arrange your life and decide whether the UK is the centre of your life," said Mr Gambles.
The new guidelines from Her Majesty's Revenue and Customs (HMRC) require British nationals claiming non-resident status to prove they do not retain connections with the UK.
These links include having a property, holding sports or social club memberships, keeping a mobile phone contract and having family there or children going to schools or universities in the UK. A Briton who makes regular visits home could also be liable for UK tax.
UK residents are required to pay British taxes on their worldwide assets and income, whereas generally non-residents only pay UK tax on income that originates from UK sources.
The changes in UK tax practice followed the case against Robert Gaines-Cooper, a British business tycoon who lost his appeal in February this year to HMRC. Mr Gaines-Cooper, who has established a business empire since the 1970s in the Seychelles, claimed to be wrongly denied non-resident status since he complied with HMRC guidance. He is now facing a tax bill estimated to be in the region of 20 million.
Mr Gambles advises British expats to make three checks. The first is to ensure they really are clearly non-resident under the new UK rules. If they could be seen as UK residents, the second step is to decide whether they want to change their lifestyle to sever the connections, which may mean not flying back to the UK every summer to visit their family and friends. Third, they might need to change their approach to tax-planning:
"If you are not prepared to change your life, then the thing you might need to change is your entire tax planning," he said. "You might need to think about planning your affairs from the point of view of being a UK resident, which is a very different outlook to planning your affairs as a non-resident."
John Andes, a partner at KPMG Thailand, said British expats with property offshore should take the necessary steps to convince UK authorities they are not UK residents. "If you are leasing out your home, make sure you have a lease contract to support the lease," said Mr Andes. "If you are working overseas, ensure that you have a proper employment contract at a minimum."
But there are many remaining grey areas to be investigated, such as whether full-time employment is required or how regularly one needs to work.
Transferring a British company pension outside the UK, disposing of non-investment property as well as holding an offshore bank account are also recommended as ways to indicate non-resident status.
With more than 50,000 British expats living in Thailand, the new UK tax rules are expected to have an immediate and long-term impact on Thailand's economy.
"Any UK expats who felt they were non-residents but who are now classed as UK residents may not spend and invest as much in Thailand as the money will be spent on paying UK taxes," said Mr Gambles.
In the long term, the ruling could also affect people planning to retire in Thailand, he added.
"It's going to make a big difference on their views of the cost and benefits of living in Thailand. Maybe they thought they're going to be 40% or 50% better off by living in Thailand or on investment income, but it might not be the case now."
It will also be harder to set up businesses in Thailand and elsewhere as companies in the UK may have to bear the rising costs in sending British nationals overseas, he said.
The rule change could also herald a host of measures from Western tax authorities seeking to boost their tax revenues from nationals overseas.
"The big concern is that the next step by the UK and all the other indebted Western governments will be to move to an American-style tax basis, where all citizens are liable to tax on worldwide gains and income, irrespective of their residence status. This could affect millions of expats worldwide and have a huge impact on the economy of countries such as Thailand," said Mr Gambles.