Following publication of the Finance Bill, consequent on the recent Budget, HMRC is to win the right to challenge the residency position of non-UK residents if they were to spend more than 10 days working in the UK during a year, potentially subjecting their entire income to UK tax.
PwC said this means a great many individuals who have considered themselves to be non-resident for a number of years may find their residency positioned challenged. Sean Drury, international mobility partner at PwC, said: "We believe 10 days is a ludicrously low figure and will severely restrict multinational corporations in conducting trade. Particular concerns would be raised where expats are working in jurisdictions with low or no tax, such as the emerging and growth economies of the Middle East and southeast Asia."
Expats may also be hit by changes to the tax treatment of their pensions. In line with what PwC calls the "disguised remuneration rules", HMRC last week announced changes to Extra Statutory Concession (ESC) A10.
Ben Wilkins, international mobility adviser at PwC, said: "Although little known outside of the tax profession, ESC A10 has been a bedrock concession for pensions for years and allows relief for individuals who have worked the majority of their life overseas. The proposed changes to this concession will bring into the scope of tax pensions accruing from 6 April 2011. These may not have previously been taxed in the UK. We will be closely following the detail over the forthcoming weeks."
Drury added: "There has been more change to the fundamental principles of domicile and residency in the past four years, especially in HMRC interpretation, than in the previous 40. I seriously question whether all these changes have improved the position of the United Kingdom from either a revenue or economic perspective. We welcome the possibility of a statutory residency test to the extent it is clear, equitable and enhances rather than hinders expatriation and the flow of trade."
