UK Non-Tax Residence: The Hidden Tax Risks That Could Cost You Millions

Recent data shows that more millionaires are leaving the UK than ever before¹, driven by rising tax burdens, political uncertainty, and the search for greater financial freedom. And having left the UK, as a British expatriate it's essential to understand how your UK non-resident status is determined, in order that you can maintain it for tax purposes.

Without this clarity, a simple misstep, such as spending too many days in the UK, could inadvertently trigger UK tax-residency, exposing your global income and assets to significant UK tax liabilities, including Capital Gains Tax (CGT) and Inheritance Tax (IHT). This is particularly relevant for high-net-worth individuals who have built substantial wealth, often through business ventures and property holdings.

Why UK Non-Tax Residence Matters

Under UK tax rules, individuals who are UK tax resident are subject to UK tax on their worldwide income and gains. Conversely, non-UK residents are generally taxed only on their UK-sourced income and certain gains, particularly those involving UK property and land.

If you have recently sold a business, hold substantial UK assets, or are planning for wealth succession, any lapse in your non-tax residence status could expose you to UK tax liabilities. The consequences can be severe, eroding your wealth and significantly reducing the amount passed on to your children.

The UK Statutory Residence Test (SRT) determines an individual's tax residence status, based on the number of days spent in the UK and other connecting factors.

Worked Example

The Negative Impact of Failing to Maintain Non-Tax Residence

Scenario - Sale of a UK Business for £10 Million

• John, a British business owner, sells his UK-based business for £10 million.
• He has lived abroad for two years and plans to remain non-UK resident to avoid UK Capital Gains Tax (CGT) on the sale proceeds.
• John also holds £15 million in UK property and investment assets, intending to manage his exposure to UK Inheritance Tax (IHT).

Year 1 - Sale Proceeds Received

• John receives the £10 million proceeds from the sale while overseas, believing he is non-UK resident.
• Under UK tax rules, non-residents are not subject to CGT on the sale of shares in a UK company unless the company derives 75% or more of its value from UK land.
• As John's company was a trading business, the sale is outside the scope of CGT - provided he is non-UK resident.
  

Year 2 - Return to the UK

• John visits the UK frequently to see family and oversee property investments.
• He inadvertently triggers UK tax residence under the Sufficient Ties Test by spending 95 days in the UK and maintaining accommodation.
  

Consequence - Retrospective Capital Gains Tax Liability

• Because John becomes UK tax resident within five years of the sale, the UK's 'Temporary Non-Residence Rules' apply.
• These rules mean that any gains realised while non-resident become taxable in the year of his return. John faces a CGT liability on the £10 million gain, potentially at the 20% rate, resulting in a £2 million tax bill.
  

Mitigating the Risk by Maintaining Non-Resident Status and Managing his Assets

Maintaining UK Non-Resident Status

To maintain his UK non-resident status, John should;

• limit his UK visits to fewer than 90 days per annum;
• ensure any work-related activities in the UK are limited to fewer than 31 days;
• avoid maintaining UK accommodation that he uses freely; and
• ensure that he reviews his plans on an ongoing basis in the context of residence status rules.

Managing UK Assets to Reduce IHT Exposure

John’s UK assets of £15 million are subject to UK Inheritance Tax at 40% upon his death, resulting in a potential £6 million tax bill.

However, from 6th April 2025, the UK IHT regime will shift from a domicile-based system to a residence-based system². This change presents a significant opportunity for individuals who maintain UK non-resident status for at least 10 consecutive years. After this period, non-residents will no longer be subject to UK IHT on their non-UK assets.

To mitigate his IHT exposure, John should:

• Divest from UK property and reinvest in non-UK assets.
  Under the new rules, non-UK assets will fall outside the scope of UK IHT if he maintains non-resident status for 10 years.
• Ensure that he monitors and maintains his UK non-residence status on an ongoing basis for 10 consecutive years.

Secure Your Financial Freedom with Expert Cross-Border Advice

Failing to monitor your UK non-tax residence can significantly impact your wealth and your ability to pass on your assets to your family and beneficiaries in the most tax efficient way possible.

At Forth Capital, we specialise in cross-border financial planning, helping internationally mobile British expats build and protect their wealth with confidence.

To schedule an initial consultation with one of our dual qualified international financial planners, contact us today.

¹ Source - The H&P Private Wealth Migration Report 2024

² HM Treasury Policy Paper - New residence-based regime for inheritance tax

This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.

Last updated 14 February 2025