Tax nomads: Rolling stones gather no moss… and no tax?
Andy Wood • September 5, 2024
Introduction – Tax Nomads
‘A rolling stone gathers no moss’ says the old proverb.
Broadly, it translates to the idea that a person who does not settle in one place will not accumulate wealth, status, responsibilities, or commitments.
Of course, some might say that at least half of these are a decided benefit!
But what, if any, are the advantages of being a ‘fiscal rolling stone’?
This is a question we’re being asked more and more.
In many scenarios, this is because jurisdictions are seeking to attract so-called ‘digital nomads’ or tax nomads to their shores as part of a land grab for the internationally mobile wealthy individual.
So, is there more than just better weather on offer?
What’s the plan?
The plan is rather appealing.
Swapping your home office desk to working from the beach? Swapping the grey skies and bitterly cold wind for a tropical climate?
Sign me up.
Indeed, with the improvements in technology, and perhaps a change in attitude to remote working, the practical side of being an overseas, digital worker has never been easier to achieve.
Traditionally, the tax nomad model has been to split one’s time between a number of carefully chosen countries, moving on before falling to being resident for tax purposes in the current jurisdiction.
In theory, at least, it is possible to wander the world, moving on before the relevant tax authority asks you to join their little club.
However, I am a cynic at heart.
There must be an inherent danger that, despite arguing that you are not resident for tax purposes in ANY jurisdiction, you end of with multiple jurisdictions chasing you for their ‘fair share’!
So my preferred route is to find yourself a low tax jurisdiction to make your home base and establish residency there (more on this later). Plant a flag there.
Additionally, this is likely to help on tax and more mundane things like being able to open a bank account. Financial Institutions tend not to like those of ‘no taxed abode.’
To summarise, our cunning plan is two pronged:
• Dis-establish UK residency by reference to the Statutory Residency Test; and
• Create a ‘home base’ in a favourable jurisdiction.
Dis-establishing UK residence
The first aim is to ensure one is no longer resident for UK tax purposes.
The Statutory Residence Test (“SRT”), with effect from April 2013, replaced the unsatisfactory, and frankly preposterous, position that meant one had to rely on a patchwork of case law.
If Elmer the elephant did tax policy, it would have been the pre 2013 UK approach to tax residence.
There are three tests and they apply as a waterfall.
If one finds safety in the first then there is no need to go on to the next.
If not, it is only then that one moves to the next.
The three tests are as follows:
1. Automatic overseas test: if this test is satisfied then the taxpayer is conclusively non-resident;
2. Automatic residence test: if this test is satisfied then the taxpayer is conclusively UK resident;
3. A sufficient ties test: if neither of the above tests are satisfied then one resorts to a day-counting test
This article is not focused on the SRT, so a detailed exploration of this subject is a little off topic. But you can find a helpful link to one that does here
However, generally, speaking, these tests will limit the amount of time one can spend in the UK and claim to be non-resident.
The statutory residence test is not always easy to apply. However, what it perhaps lacks in simplicity it does, generally speaking, provide a greater degree of certainty than under the old rules.
Of course, there are exceptions!
Tax implications of being non-UK resident
Where one is non-UK resident for tax purposes, then one should only have an exposure to UK tax on UK source income. For example, on UK rental income.
This position is further narrowed by ‘disregarding’ certain UK income sources (including dividends from UK companies) from tax where the recipient is non-UK resident.
Further, one will only be in the scope of UK capital gains tax on the disposals of UK real estate, whether directly or indirectly held.
For both income and capital gains tax purposes, there are anti-avoidance rules which might create tax liabilities where the individual subsequently becomes UK resident within 5 years (and one should never underestimate how long 5 years is).
Choosing a home base?
Assuming one is not going to continually move from one jurisdiction to another, then one next needs to choose a tax base. This is the place where one is putting a flag in the ground and saying ‘yep, this is my home’.
Of course, you might use this as a jumping off point to visit other countries (and note, one would not want to become resident in those countries).
However, constructing a tax base where one is liable to tax does not necessarily mean that you rolling stone dreams have been thwarted.
There are many jurisdictions around the world where one might become resident for tax purposes but can broadly live tax-free from much of your foreign income – only suffering local tax on local source income.
For example, one can qualify under Cyprus’ non-domicile regime if one spends as little as 60 days a year in the UK. Generally speaking, income derived outside of Cyprus is not taxable in Cyprus.
Dubai is another very popular jurisdiction. It is not correct to say it is a no tax jurisdiction. VAT has been payable by GCC states for a few years and the UAE introduced corporate income tax (top rate 9%) in June 2023. However, there is still no personal tax, which is an ideal position for the nomadic world citizen.
Barbados is a more recent popular destination for digital nomads due to its special ‘Welcome’ visa. Again, only Barbados source income is subject to local tax along with foreign income and gains to the extent it is enjoyed on the Island.
Previously, one could also become resident in Portugal and avail oneself of the Non-Habitual Residence (“NHR”) regime. This broadly provided for a 10-year exemption on certain foreign income and gains.
As I’m not a travel agent, I’ll stop there.
Employer beware!
Finally, an employer cannot simply leave its employees to set up and start working remotely from a beach hammock without the fear of any consequences.
They will need to ensure that they deal with their employee properly from a payroll perspective.
However, in addition, they will need to ensure that the employee does not inadvertently create any taxable presence in the country in which they are staying.
Conclusion
To conclude, it is certainly possible to be a tax nomad.
However, my preference is to actually plant a flag in the sand somewhere and create a tax home base.
My opinion is that this will assist in mitigating the chances that you have multiple tax authorities on your tail which might be the case where you have not created that tax base.
Following this plan will also tick some more boring boxes such as more readily being able to open bank accounts and purchase other financial products.
Even so, and obviously depending on your circumstances, it should be possible to limit one’s tax liabilities.
Hopefully, unlike the Rolling Stones song, this will give you some satisfaction.
If you have any queries about tax nomads or tax matters in general, then please get in touch.
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How internationally mobile high-net-worth individuals structure global income while managing tax exposure across jurisdictions such as the UK and UAE.