Pensions - escaping UK taxation

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Old Sep 14th 2017, 6:26 am
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Default Re: Pensions - escaping UK taxation

Read through with great interest as it's coming up a year since we left blighty. Currently house is rented out and I am using a friends address as an accommodation address, so was all looking good but I think my recent agreement to do a bit of part time support work on a self-employed basis for a previous employer may have scuppered my chances of making a clean break with HMRC. That's had me reactivating my UK company so that they can pay it for my services I have a feeling trying to be a non resident company director (albeit on a tiny scale) may well be too complex, we're not talking significant enough sums that paying lots for complicated tax structures is worth consideration. My accountant feels it's out of his comfort zone. Certainly it's beyond me working out from HMRC guidance.
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Old Sep 14th 2017, 7:06 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by IanBlakeley View Post
Read through with great interest as it's coming up a year since we left blighty. Currently house is rented out and I am using a friends address as an accommodation address, so was all looking good but I think my recent agreement to do a bit of part time support work on a self-employed basis for a previous employer may have scuppered my chances of making a clean break with HMRC. That's had me reactivating my UK company so that they can pay it for my services I have a feeling trying to be a non resident company director (albeit on a tiny scale) may well be too complex, we're not talking significant enough sums that paying lots for complicated tax structures is worth consideration. My accountant feels it's out of his comfort zone. Certainly it's beyond me working out from HMRC guidance.
Ian I am by no means an expert on tax issues so please consider this carefully and draw your own conclusions.
The first port of call when trying to work out your tax liability in UK and Malaysia should be https://www.gov.uk/government/upload...-_in_force.pdf. From my reading of this, even if you are a resident of Malaysia if you are earning income in the UK you are liable for taxation of that income in the UK. But do scan down through the articles as there are a number of categories for which the general rules may be slightly amended so make sure you do not fall into one of these.

Hope this helps, in my experience writing to HMRC will not get you a very helpful answer. But if you do your research and determine your best outcome just tell HMRC what you are doing and why. They must play by the same rulebook and will only challenge you if you get it mighty wrong.
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Old Sep 15th 2017, 11:51 am
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Default Re: Pensions - escaping UK taxation

I've been retired for nearly 20 years so things will have changed, probably.

But it used to be that any money earned in UK whether salary, or rental income was subject to UK tax even if the earner was non resident in UK. If those earnings were above the allowances available of course.

Also to become non resident you had to have spent a full tax year outside UK, April to April not say September to September if you wanted your ex UK earnings to be non taxable.

Dunno if those conditions are still the case but I'd be interested to know if things have changed and what those changes are.

Last edited by ex reg; Sep 15th 2017 at 11:54 am.
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Old Sep 16th 2017, 7:06 am
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Default Re: Pensions - escaping UK taxation

If you are not UK tax resident and receiving salary for work done outside the UK, then this income is not earned in the UK, even when paid by a UK company, and shouldn't not be taxed in UK.
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Old Sep 16th 2017, 9:19 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by stepen View Post
If you are not UK tax resident and receiving salary for work done outside the UK, then this income is not earned in the UK, even when paid by a UK company, and shouldn't not be taxed in UK.
I don't think that is correct as Ian states that he has "reactivated" his UK company. Assuming he is a director and paid through that company he should be aware that a non-resident director of a UK company is an office holder, and any income received in respect of this UK role will be treated as earnings in the UK and subject to UK wage tax withholding (“PAYE”).

Double tax treaties do not usually offer any protection in this regard. However, if the individual is not remunerated in any way, either by the UK or overseas entities for the UK directorship, there will be no UK tax liability.
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Old Sep 16th 2017, 9:28 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by InVinoVeritas View Post
I don't think that is correct as Ian states that he has "reactivated" his UK company. Assuming he is a director and paid through that company he should be aware that a non-resident director of a UK company is an office holder, and any income received in respect of this UK role will be treated as earnings in the UK and subject to UK wage tax withholding (“PAYE”).

Double tax treaties do not usually offer any protection in this regard. However, if the individual is not remunerated in any way, either by the UK or overseas entities for the UK directorship, there will be no UK tax liability.
I have researched this in the past. And several accountants says that hmrc will only tax director services performed in the UK.
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Old Sep 20th 2017, 2:56 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by IanBlakeley View Post
Read through with great interest as it's coming up a year since we left blighty. Currently house is rented out and I am using a friends address as an accommodation address, so was all looking good but I think my recent agreement to do a bit of part time support work on a self-employed basis for a previous employer may have scuppered my chances of making a clean break with HMRC. That's had me reactivating my UK company so that they can pay it for my services I have a feeling trying to be a non resident company director (albeit on a tiny scale) may well be too complex, we're not talking significant enough sums that paying lots for complicated tax structures is worth consideration. My accountant feels it's out of his comfort zone. Certainly it's beyond me working out from HMRC guidance.
Ian,

I have an active UK company and am presently a non tax resident of the UK (company contains retained earnings from previous years). I have chosen to not pay myself a salary and am looking at taking some of those retained earnings out as dividends. Check with your accountant but as a non UK tax resident those dividends will not be taxed (provided you do not become a UK tax resident again in the next 5 years), and as a Malaysian tax resident offshore earnings are not taxed. You will of course have to pay UK company tax on any earnings you make. Worth checking and doing the sums to see if worthwhile.
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Old Sep 20th 2017, 6:10 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by simon2017 View Post
Ian,

I have an active UK company and am presently a non tax resident of the UK (company contains retained earnings from previous years). I have chosen to not pay myself a salary and am looking at taking some of those retained earnings out as dividends. Check with your accountant but as a non UK tax resident those dividends will not be taxed (provided you do not become a UK tax resident again in the next 5 years), and as a Malaysian tax resident offshore earnings are not taxed. You will of course have to pay UK company tax on any earnings you make. Worth checking and doing the sums to see if worthwhile.
What you say is correct Simon but Ian's circumstances are rather different in that his UK company has been paid for services he has himself performed in the UK. I don't think HMRC are going to look kindly on him taking the income from this as dividends paid to him later as a non-resident director (perhaps the only director).

Without wishing to add to Ian's problems he needs to carefully consider how HMRC may view his claim to be non-resident in light of his work and accommodation address. The risk is that any other UK income he may have could be at risk of being taxed if he comes under HMRC scrutiny.
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Old Dec 29th 2017, 8:59 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by NeonHippy View Post
At last 183 days served in Malaysia and ready to do battle with HMRC.
What if you haven't spent 183 days in any one country? Is it then a matter of choice where you deem yourself to be tax resident?
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Old Dec 30th 2017, 2:26 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by bakedbean View Post
What if you haven't spent 183 days in any one country? Is it then a matter of choice where you deem yourself to be tax resident?
Hehe, back in the sixties if you can remember them the singer Donavon bought himself a boat and went sailing from country to country to avoid being a tax resident anywhere. But they have closed that loophole now.

The answer to your question probably needs you to look at the tax rules for each country where you have spent a significant amount of time as rules may differ but IIRC when I was looking into this the HMRC would deem it to be the country where you spent the most time in the year. But you have not been a UK tax resident for many a year so that is likely to be irrelevant.

If you have an established residence, time spent away on holidays do not count. So, as you own a property in Malaysia and have only been 'visiting' these other countries on vacation you should still be tax resident in Malaysia. Now this is the point where I hope you followed my lead and established your tax residency in Malaysia before you started all your galavanting around as it might be difficult if you need to show 183 days this year.

As a property owner you should have a tax number. If you were to establish residency in Malaysia this is the number they would use. So if any bank is asking the question just give them that number as your TIN.
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Old Dec 30th 2017, 2:34 am
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Default Re: Pensions - escaping UK taxation

You don't have to be tax resident anywhere, but this depends on your citizenship. I'm not sure for UK, but I think if you're already non resident then they wouldn't consider you UK tax resident just because you are no longer Malaysia tax resident.

And you are only tax resident in Malaysia if you spend more than 183 days in a year. Having a property doesn't change this.
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Old Dec 30th 2017, 5:17 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by NeonHippy View Post
The Malaysian tax code only taxes it's citizens on the income they generate within the country. Income from external sources are not taxed. So if you are here and working (not mm2h) you will be subject to tax on your income in Malaysia including investment and rental income. Tax in MY is banded but I havn't tried to work out the impact of this.

On MM2H and assuming your pension is coming from the UK but not a forces or government one then you will not pay tax on it. I'm pretty sure I read somewhere that under MM2H they will not tax you on investment income. They are probably just happy for you to be placing your faith in 1MDB and similar schemes. But if you buy property and rent it out I think you would be wise to declare it. The tax bill should be reasonably low as most of the rent will be inside your tax free allowance as all your other sources of income are non-taxable and you can of course offset any expenditure against tax.
Yes,Malaysia has a dual tax treaty with the Uk. If tax resident Malaysian income is due on earnings in Malaysia, Uk tax on Uk earnings (in my case a pension). If you pay Malay tax remember that you can claim extra allowance for books, computers, medical expenses, etc.
Ringgit plus has a good explainer: https://ringgitplus.com/en/blog/Personal-Finance-News/Malaysia-Personal-Income-Tax-Guide-2017.html
This site gives proposed changes: https://ringgitplus.com/en/blog/Personal-Finance-News/Malaysia-Personal-Income-Tax-Guide-2017.html
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Old Dec 30th 2017, 6:52 am
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Default Re: Pensions - escaping UK taxation

If you've established Malaysian residency in prior years, as NeonHippy advised, my understanding is that it's possible to be tax resident in Malaysia even if you do not spend 182 days here in the year:

If you are in Malaysia for 90 days or more and, in three of the four immediately preceding basis years, you were either Malaysian tax resident or in Malaysia for 90 days or more, then you will be deemed to be resident for that basis year (Income Tax Act 1967 sec. 7(1)(c)).

If your time in Malaysia that's less than 182 days is linked to a period of 182 or more consecutive days in Malaysia in the immediately preceding or succeeding calendar year, you are tax resident in both years. You must be in Malaysia on both Dec 31 and Jan 1 to make the link. For example, if you were in Malaysia for a) 182 days in 2016, b) Dec 31, 2016, c) Jan 1, 2017 d) you leave Malaysia in February 2017 and don't return, you're tax resident in Malaysia for both 2016 and 2017.

If you spend no time in Malaysia in a particular year but you were resident for the 3 immediately preceding years and the immediately following year, then you're resident in Malaysia for your year of absence also.

If you're just short of 182 days, I think you may be able to claim some days outside Malaysia as days of residency in Malaysia, depending on the reason for the absence. For example, you're allowed 14 days absence as a social visit (be careful - this is not the same as a holiday).

Income Tax Act 1967, Section 7 covers this, see attached pdf from the Hasil office.
Attached Files
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Old Dec 30th 2017, 9:15 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by stepen View Post
You don't have to be tax resident anywhere, but this depends on your citizenship. I'm not sure for UK, but I think if you're already non resident then they wouldn't consider you UK tax resident just because you are no longer Malaysia tax resident.

And you are only tax resident in Malaysia if you spend more than 183 days in a year. Having a property doesn't change this.
This is not quite so. Unless you are a tramp pushing your worldly possessions around in a pram and scavenging food from bins or you are ex special forces living in the jungle and surviving on bugs you will need some income to get by. In general each country where you have income will want to get their hands on a slice of the pie. That is where double taxation treaties define what taxes are due when you have income in one country and live in another.

To establish your tax residency in Malaysia you need to complete 183 days residence in a tax year but as Montecute has pointed out once you have tax residency you do not need to stay for 183+ days every year.

Yes it is possible to live below the radar and avoid paying taxes but it is becoming increasingly difficult as countries and banks become ever more aggressive in seeking evidence of tax status for customers whose address is in a different country to the bank's. But by the simple expediency of filling in a few forms, the cost of the bus fare into George Town and a few postage stamps back to the UK I can enjoy a decent pension from the UK, income from investments in the UK and Singapore, together with interest from bank accounts and fixed deposits in Malaysia without paying a penny in tax. More importantly I do so legally and I can sleep soundly at night without having to worry about becoming the next Al Capone.

You are correct that owning a property does not create residence or citizenship but it will go a long way to proving continued residence whilst spending a lot of time travelling for pleasure. I can be a citizen oF the UK and still be a tax reside here iN Malaysia. It is something BB should be aware of should she get questioned about her tax residency from a country trying to grab a slice of the pie.

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Old Dec 30th 2017, 10:51 am
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Default Re: Pensions - escaping UK taxation

Originally Posted by NeonHippy View Post
This is not quite so. Unless you are a tramp pushing your worldly possessions around in a pram and scavenging food from bins or you are ex special forces living in the jungle and surviving on bugs you will need some income to get by. In general each country where you have income will want to get their hands on a slice of the pie. That is where double taxation treaties define what taxes are due when you have income in one country and live in another.
Taxation is not simple, but you are overlooking some things. As you wrote .."where you have income"..
If you receive dividends etc from overseas without working in the local country then you generally don't have to pay tax on this (depends on the country).
So it's quite possible to not be tax resident anywhere, and also not be subject to tax if you stay less than 183 days.
Also countries like Malaysia doesn't tax overseas income, so the overseas dividends wouldn't be taxable even if you were tax resident.
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