If you have left the UK and arrived in Cayman, you now need to think about dealing with the limited formalities associated with leaving the UK.
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If you were once resident in the UK and are now resident in the Cayman Islands, then knowing your tax status and your UK tax obligations is very important. Equally, if you are thinking of emigrating the same is true.
Tax Status for Expatriates in Cayman
When moving from a country that enforces taxation upon its citizens to the Cayman Islands—a country without direct tax—there are certain rules and regulations that need to be adhered to in relation to your 'home' country. Here we discuss the differences between the UK and US Tax Status and what you need to do to follow the rules to ensure those taxes get paid on time.
For information on how American and United Kingdom nationals, who now live in the Cayman Islands, are taxed by their home countries please read on.
In this section we describe everything you will need to know, from a tax perspective, on what it takes to leave the UK and take up residence in the Cayman Islands. We offer advice if you want to keep a UK property, whether to rent it out or not, and we cover what you will and won’t get taxed on if you still have work commitments in the UK. We also discuss what to do with your UK pension, income you may receive from rent, your bank account or other assets remaining in the UK, and then what happens if you decide to return to the UK, as a full-time resident, before five years has passed.
Tax Advice for UK Citizens Moving to Cayman
If you have left the UK and arrived in Cayman, you now need to think about dealing with the limited formalities associated with leaving the UK.
If you were once resident in the UK and are now resident in the Cayman Islands, then knowing your tax status and your UK tax obligations is very important. Equally, if you are thinking of emigrating the same is true.
It is important to let the H M Revenue and Customs (HMRC) know that you have left the UK. We explain how you do that here. You also need to think about how you treat the interest you earn from a UK bank account, what you do with your UK-based pension and any UK rental income (if you are renting your UK house) and how to treat a split year. Read on for more information.
Letting HMRC Know You’ve Gone
When you leave the UK, you can complete and submit form P85 “Leaving the UK – getting your tax right” to HMRC. This form advises HMRC that you are leaving the UK and will help them decide if you will still be required to file a UK tax return as a non-resident, for example, if you are in receipt of UK rental income or if you are a director of a UK company. Alternatively, you can inform HMRC on your last self-assessment tax return.
Typically, you need to let them know certain key information regarding where you will be living and how much time you will spend in the UK in the future. This is used by HMRC to assess whether you have in fact ceased residence in the UK.
Dealing With Your Pension
If you have a UK pension, you may be able to apply for this to be paid gross (or in limited circumstances claim a refund on the tax deducted on a lump sum payment) by completing form “DT-Individual”. The Cayman-UK double tax treaty enables you to receive your UK pension gross. It is prudent to obtain formal advice from a pension expert to help you decide how to take your pension.
UK Rental Income
Once you are non-UK resident, if you have UK investment property that is let out (this could be your own (former) home), then you should elect to be considered a non-resident landlord. This will enable your estate agent (or tenants) to pay you without deduction of UK income tax at source. You may still be liable to UK income tax on any UK rents arising.
Split Year Treatment
You may have arrived in Cayman part way through a tax year (which runs from 6 April to the following 5 April) and think you are non-UK resident and can forget about UK tax; however, there are three things you need to be aware of.
Firstly, you need to make sure you have complied (and in some instances continue to comply) with the conditions to split the tax year into resident and non-resident parts. If you do not comply then you will be treated as resident in the UK for the entire tax year of your departure and possibly thereafter. This is particularly importantly if you are moving to Cayman to take up employment (or the spouse or partner of someone who is taking up employment in Cayman).
Secondly, you need to think about the nature of your income and capital gains. Some income and capital gains can still be subject to UK tax even if you have become non-UK resident and may continue to be taxable even if you manage to split the tax year into resident and non-resident parts.
Thirdly, how does the UK-Cayman double tax treaty affect your tax position?
UK Income Tax For Non-UK Residents
Once you have worked out if you are UK resident or not, you can then determine how you will be taxed in the UK, if at all, as a non-UK resident. If you are non-UK resident, you should only be liable to UK income tax on your UK sourced income. Sometimes determining the source of income is not straightforward but in most instances it will be obvious.
You will only receive a UK personal allowance if you are a citizen of the European Economic Area (which includes British passport holders) or you worked for the UK government during the tax year. (Many people born in the Cayman Islands are entitled to British Citizenship, but most non-British expatriates won’t be British Citizens).
As a non-UK resident, you can be taxed under section 811 Income Tax Act 2007. Under this provision, income tax on “disregarded” income (for example, UK bank interest, UK dividends and certain UK pensions) is restricted to the tax deducted at source in the UK, if any. So, for example, you may be in receipt of UK bank interest of £100, and tax of £0 has been deducted at source. No further UK income tax will be payable by you. Being taxed under this provision does result in the loss of your personal allowance but can be advantageous in the right circumstances.
Letting out UK Property
Many UK expatriates continue to own UK property when they leave the UK which is then rented out. It is important that your UK tenant or letting agent is aware that you, as the landlord, are not UK resident as UK basic rate income tax should be deducted from rental payments and paid to HMRC (either by the tenant or the letting agent).
Non-UK resident landlords can apply to HMRC for the rental income to be paid gross through the Non-Resident Landlord Scheme. If approved, you can receive the rent without deduction of tax at source; however, you may still be required to complete a UK tax return every year and if the net profit exceeds your available tax-free personal allowance, UK income tax will be payable.
Typically, you will need to keep a record of expenses, eg loan interest, letting agency fees, repairs and similar so you can prepare accounts to support your income tax return.
Receiving Loan Interest
If you are Caymanian resident and in receipt of UK sourced interest on a loan to a UK resident person, the borrower will be obliged to deduct income tax from loan interest payments. You should have no further UK income tax liability if you are taxed under the disregarded income rules mentioned above.
Working in the UK
As can often be the case, you may still be required to travel to the UK for work even if you no longer live in the UK, whether you are employed or self-employed.
Employed
As long as the duties you carry out in the UK are merely “incidental” to the duties that you carry out overseas, you will not be subject to UK income tax on your earnings. Examples of incidental duties include meeting clients whilst visiting the UK or spending a short amount of time training in the UK.
If the duties carried out in the UK are non-incidental, for example, similar to the duties carried out overseas or if you are a director attending board meetings in the UK, the earnings related to your UK duties will be subject to UK income tax (to the extent they exceed the UK tax-free personal allowance, if you qualify). It is important to note that HMRC are unlikely to agree UK duties are merely incidental if you are a director.
If you have to spend time working in the UK then care must be taken regarding the number of days you spend in the UK because this might have an impact on your residence position. Typically, if you work in the UK for less than 31 days and work sufficient hours overseas, then you should not be considered UK resident and may also be able to split the tax year if the tax year is a year of departure. The rules are complex and the way they are drafted mean that it is only possible to determine your residence position with certainty in retrospect.
If you are obliged to work for a UK subsidiary of a Cayman entity it is likely that that UK entity will have reporting obligations depending on the number of days you are working in the UK. In addition, you may be subject to Pay As You Earn (broadly your UK company will have to operate a payroll for you) on a proportion of your UK earnings. Your employer can agree with HMRC how much of your salary is taxable in the UK through a specific clearance process.
If you work for your own Caymanian company in the UK not only will you need to consider your own tax position but you will also need to consider the tax position of your Caymanian company. For example, you may need to consider the place of residence of your company (it could be in the UK) or whether the company has a permanent establishment in the UK.
Self Employed
If you carry out a trade, profession or vocation wholly in the UK, you will be liable to UK income tax on the profits generated. If the trade, profession or vocation is carried on partly in the UK and partly overseas, you will be liable to UK income tax on the profit from the part of the trade carried on in the UK.
This can be a complex area of tax and it is recommended that you seek tax advice as there are many issues to consider, such as the creation of a permanent establishment and the application of double tax treaties, to name but a few. The Cayman Islands does have a double tax treaty with the UK but it is narrowly drafted and therefore can only be relied upon in certain limited circumstances.
Capital Gains Tax (“CGT”) for Non-UK Residents
Broadly speaking, non-UK residents are not liable to CGT on the sale of either UK or foreign assets, although there are a couple of exceptions to this discussed below. As a general rule, best practice is to wait until the tax year following the date of your departure before disposing of any assets which will realise chargeable gains.
When you leave the UK you may be subject to CGT on the disposal of assets in the tax year of departure, if you fail the conditions to split the tax year into resident and non-UK resident periods.
You will be subject to CGT on the disposal of any UK residential or commercial property (let or otherwise). Broadly speaking, you will be subject to CGT on gains arising after April 2015 (April 2019 for commercial property) and you will be entitled to the Annual Exempt Amount. You may be able to claim some private residence relief if the sale is a disposal of your former home. The deadline for filing a non-resident CGT return is usually 60 days after the completion of the sale.
If you are thinking of returning to live in the UK, you should bear in mind that there is a CGT “temporary non-resident” rule, which is discussed in more detail below.
If you dispose of an asset used for the purposes of a trading activity carried on in the UK then you can also be subject to CGT.
If you choose to own UK residential property through a company, the corporate vehicle would be liable for UK corporation tax on any capital gain it makes.
Annual Tax on Enveloped Dwellings (“ATED”)
This may not immediately apply to you but if you choose to own UK residential property through a company you need to bear in mind that UK and foreign resident companies and other corporate bodies that own UK residential properties valued at more than £500,000 are likely to be within the ATED regime. If this is the case, the corporate vehicle will be subject to an annual tax charge.
There are exemptions from the ATED rules for genuine property businesses, for example if the UK property in question is let out to unconnected third parties, some of these rules would not apply (albeit there would continue to be on-going compliance obligations for the company).
Inheritance tax (“IHT”)
With effect from 6 April 2025 the basis for charging IHT in the UK changed from a domicile to a residence basis. Up until 5 April 2025 an individual’s exposure to an IHT charge has been dependent on their domicile status which can be complicated to determine and in addition there were deeming provisions to consider. Up to 5 April 2025 if an individual is not UK domiciled or deemed to be UK domiciled, they were only exposed to IHT on UK located assets. A UK domiciled or deemed domiciled individual was exposed to IHT on their worldwide assets.
With effect from 6 April 2025 an individual’s exposure to IHT will be as follows.
From 6 April 2025, the test to determine whether non-UK assets are within the scope of IHT will be whether the individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) occurs. At this point, a ‘long-term resident’, will be liable to IHT on their worldwide assets.
If therefore an individual has been resident outside the UK for 10 years or more (in Cayman or elsewhere) immediately preceding the tax year in which are chargeable event occurs (ie they are not a long-term resident), they will only be within the scope of IHT on their UK located assets.
This change in law follows a long period where the concept of domicile was pivotal in determining liability to IHT. However, because of this change the law includes a transitional provision.
This states that where an individual would otherwise be long term resident in a tax year, this transitional provision basically allows the old rules (based on domicile) to prevail and that individual will be treated as not a long-term UK resident if they were non-UK domiciled on 30 October 2024. These rules are complex but can benefit those who have been living in Cayman for many years and are domiciled there.
As a result, all Caymanian residents should consider IHT. Simply owning UK assets directly (including a UK bank account) can bring you within the charge to UK tax even though you may have no other connections. For example, you may have a portfolio with an investment manager. Assuming you are non-UK domiciled, if that portfolio contains UK shares then you may have a liability to IHT on your death. You can insure against this risk but this needs to be done carefully. Alternatively, you can consider how you own such investments: typically, such investments are held via an overseas company.
Any UK residential property (even if held by a non-UK company) is within the scope of IHT, even if let out to third parties. If you own shares in a Caymanian company owning UK residential property then the value of the shares will be within the scope of IHT. There are also significant risks where such property is ultimately owned by a trust which may be settled by you. If you transfer a UK residential property that you own (either directly or indirectly) into a trust, you could crystalise a 20% “lifetime IHT” charge.
Once again, risks can be managed by obtaining appropriate levels of life insurance which should provide funding provided it is correctly held.
Returning to the UK
If you return to the UK, there is no specific form to complete and submit to HMRC. Instead, you will need to determine whether or not you will be required to complete a Self-Assessment tax return (“SA return”). Your obligation to complete a SA return will depend on your personal circumstances and it is your responsibility to advise HMRC if you have a UK tax liability
However, those who have been long term non-UK resident (broadly greater than 10 years) can gain tax advantages on returning to the UK with the abolition of the concept of domicile in UK law. In the simplest sense when they return they will not be taxed in the UK in the first 4 years of UK residence on most foreign income and capital gains even if the money is brought into the UK. In addition, they will not be subject to IHT on overseas assets in the first 10 years of UK residence. Again, these rules are complex and advice should be sought to clarify the position.
Split Year Treatment
Similarly to leaving the UK, you may be able to claim split-year treatment when you return to live in the UK such that the tax year is split into an overseas part and a UK part. You may be able to make a claim if you meet any of the following criteria:
• you start having a home only in the UK;
• you start full-time work in the UK;
• you cease full-time work overseas;
• your partner ceases to work full-time overseas and you return to the UK with them; or
• you start to have a home in the UK
There are various conditions attached to each of the above criteria and as such, it is important to consider them in light of your personal circumstances. If you fail the conditions to split the tax year into resident and non-resident periods, you will be treated as resident in the UK for the entire tax year of your year of return to the UK. It is essential to make sure that you split the year in the year of return: if you do not do this correctly any actions taken in the overseas part of the split year could be taxable.
It is important to understand that even if you manage to split the tax year, certain income and capital gains are still subject to UK taxation even in a split year, ie when you are regarded as non-UK resident.
Temporary Non-Residence
If you return to the UK within 5 years of leaving (and for these purposes in certain circumstances we are considering 5 complete calendar years, not 5 complete tax years), you may be liable to UK tax in relation to income and capital gains that arose whilst you were non-UK resident. Any UK tax charge will arise in the year of return. It is therefore important to consider the timing of any return to the UK before you actually move. The so-called 5 year rule generally only applies to income which was connected with the period prior to your commencement of non-residence or capital gains on the disposal of assets held before you became non-UK resident.
If you are thinking of returning to the UK you should consider obtaining tax advice specific to your individual needs in order to understand your UK tax obligations. Your move may also provide an opportunity to plan your return to the UK in the most tax efficient manner. Many things may have happened in your period of non-UK residence: you may have invested in certain investments, created Cayman companies or trusts. The UK tax rules are very complex when these entities are considered.
This article only considers the personal UK income tax and CGT implications of ceasing or commencing UK residence and an individual’s liability to UK income tax and CGT when non-UK resident in broad terms. Specific UK tax advice should always be sought for your personal circumstances.
Hotchkiss Associates Limited
A professional team of tax advisors. They provide clear and concise UK and international tax advice for clients. They offer UK tax services in the following areas: bespoke private client tax advice, succession and estate planning for high-net-worth families and individuals, including tax residence and domicile advice and reviews; tax-efficient structuring using trusts and offshore companies; cross-border employment taxation; dealing with tax investigations and using disclosure facilities as well as preparation and submission of all types of UK tax returns (corporate, trust and individual).
Tel: 44 1624 872140
Email: tax@hotchkiss.im
Website: http://www.hotchkiss.im
