Ex-pats, beware the clutches of the UK and US taxman
ON THE MONEY with Roger Crombie
A couple of weeks ago, I promised to write on residence issues for Britons living in Bermuda, if so many as one person asked. Two people asked, so we will run this exact column next week, too (Just kidding).
As an added bonus, in acknowledging Mr. Obama's victory, we' will cover the US equivalent. Once President Obama is formally in charge, he will probably change all this and tax everyone in the world at 100 percent, to dig the US out of its financial mess.
Small print first. I am not a tax advisor. I am one of those guys who knows what he knows, and has not the foggiest clue about anything else. So what I am about to say, although correct, should be considered part of the picture only. Your circumstances are unique. If you are going to live outside the country you were born in, and/or whose passport you hold, or marry someone like that, or have kids like that - in short, if you are a cross-border person - you should seek the best advice you can possibly get, and then take it. In what follows, all numbers are approximate, erring on the side of caution.
It goes like this: Among the many tests of residence, which decide where taxes must be paid, a key one is the amount of time that you spend in a country in any given year. A person born and domiciled in the UK, but living overseas, may spend only a limited amount of time in the UK without incurring a liability to income tax. Anyone, born anywhere, who spends time in the US, ditto. The rules are expressed as formulae.
All manner of things, such as working in a country for so much as half-an-hour, can make you tax resident there, but if you are just visiting, the number of days you spend there is critical. Exceed the limit and you will be liable to tax. For all those who say "How will the authorities know what I get up to?" the answer is: "You will know. You have the liability. Whether the tax authorities find out now, or later, or never, do you really want to run the risk of owing tax and not pay it? Not smart."
Residence is tripped if a person spends an average of more than 90 days in the UK over a four-year period. That is an average, ie the person may spend a total of 360 days there every four years without being liable for tax. In no year must he or she spend more than 180 days in the UK, and in no rolling four-year-period must he or she spend an average of more than 90 days. By "rolling", I mean that the calculation starts anew every year.
The years in question run from April 6 to the following April 5. From memory, it has got something to do with when one of the kings had his birthday. April 5, a completely ridiculous date on which to end the tax year, is really used, however, because the British tax authorities see their job as making it as hard as possible for anyone to comply with anything; that way, more people can be fined or jailed. Odd, isn't it, then, that they call it the civil service? These people are your mortal enemy.
I go to the UK every year once or twice, sometimes more than that. I keep track of the days on which I arrive and depart, and log everything each time, to make sure I do not get anywhere near the 90-day average. I have done this for 33 years. Until now, it would have been my word against theirs (in which case I would lose unless I had kept all my air tickets, receipts, itineraries, hotel bills, etc, etc).
I have recently been given a British passport with an antenna in it. Every British person will have one of these by 2012. Every time I enter the UK, the passport is swiped by an Immigration officer, creating a record and a trail. That record will remain on the UK Government's central computer, I would guess, forever.
This intrusion on my privacy will actually help me, since my records will match theirs, proving me an honest Joe. Or so I thought, until I left England last week on a ferry and no one swiped me out. I will need to keep the ferry receipt in case of later problems.
The US has a similar residence rule, differently applied, and here I am vaguer, since I am not in jeopardy with the US, not being Amurckan, and going there much less frequently.
The US uses the calendar year. To work out the magic number of days in this case, you take the total number of days you spent in the US this year, add a third (I think) of the number of days you spent last year, and a sixth (I think) of the days you spent the year before that. If, over a continuously rolling three-year period, you exceed an average of 120 days in any three-year period, Uncle Sam will tax you on your worldwide earnings for the entire year. You would ignore that at your peril.
This is dull stuff, friends, as dull as it gets, but the consequences of not paying attention, if you go to the UK or the US with any regularity, are too awful to contemplate.
The UK tax people, who change their name so often I have forgotten what they're now called - it is the Fiscal Enforcement and Murdering Squad, possibly - say that if a family member or indeed you, fall ill and you are required to spend time in the UK trying not to die, they won't count that against you. I think they are lying. "We're not completely heartless," a tax inspector in Britain once told me, and I know he was lying.
It is only going to get worse, now that most of the countries in the world are bankrupt. Around the developed world, only a few of us are quite legally not paying income taxes. The forces of international confiscation are coming for us, one way and another, and they will not rest until the tax misery is universal.
Some unrelated personal notes follow. Reading them is not mandatory.
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I feel oddly constrained to tell you about France. I had a good time, but could not master the currency. The Euro is worth 80 pence, or something, and in dollars it is about a buck-and-a-half, give or take. But I could not face doing the calculations, so I just abandoned all hope of working anything out and did not care about the money. Someone accused me of not wanting to deal with the "filthy foreign money". That may be right.
It was only four days. It was a little like being in a casino.
You knew you would end up flat broke - I spent every Euro I had - but you had a good time anyway.
I think some people live their whole lives like that, and good luck to them. I would have found it scary, but I was not paying attention to anything, as it turned out.
Four days without a newspaper or my computer left me in a wilderness of the mind, and an enforced silence. Imagine that: me learning to shut up and not being able to handle the money. It was like being another, equally good-looking, person. Very weird.
