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Legal tax avoidance...?


Ashis

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Here's a question..... I am married (have a wife - non working) with one child and work in Switzerland and live in France in a rented house and retain a property in the UK which is currently let out. According to the Inland Revenue one has either to be in the UK for more than 183 days per tax year or resident on average over 4 years for 91 days per year to be considered a UK resident for tax purposes. I visit the UK a lot and can theoretically top the 91 day per year limit.

What is to stop me paying UK tax and NI on my income if I am in the UK more than 91 days per year on average? That way my entire income is treated as self employed, the house rental, all my commuting expenses from the UK, heating, water, light, food in France are all tax deductible. In addition the car expenses are deductible (I have a car not registered in France but in the UK) too and I don't have to go through the hassle of getting French plates etc.

Anyone see major flaws with my logic??

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I think with the Inland Revenue that nights and not days come into it somewhere, eg  you need to spend a certain amount of overnight stays to qualify. The French aspect ,I would trust TU s knowledge on that.
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TU is right - your residency would be determined as being in France. The French Taxman looks at the whole thing with much more simplicity than his British counterpart!

It is not strictly true that residency is tested by the UK authorities on the basis of the 183 day rule (a day, by the way, being each period of 24 hours accountable (and verifiable) as being spent outside the UK ( naturally, subject to 1001 other conditions).

For my sins I was once a Tax Inspector (sorry) and it always aroused my suspicions when I'd inspect a business where there were plentiful claims for overseas travel, especially claims for travel to and from the same country! It almost always turned out that the proprietor/partner/director had a "home" overseas & then we'd end up with a long complicated residency enquiry & the list of questions we had to ask was HUGE (and in no way were they at all related to any of the 183+ day rules), some questions were "weighted" more than others, such as where the wife and children lived, where the house was owned, where the children were educated etc. The question of residency could get really complicated where, for example, a businessman/woman owned more than one home in more than one country, worked in a multitude of countries throughout the year, and where any children lived abroad in the holidays but were educated at UK boarding schools for the rest of the year etc etc!!! You can imagine how complex this could quickly become especially with showbiz "customers" - this is why only the really rich can afford to try this sort of thing on - only they can afford the top accountants and legal advice when it eventually gets challenged.

Basically, nice idea - but not worth the risk!

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From what I understand your tax residency can be established in both the UK and France - the UK by your own voluntary use of the 91 day rule and imposed in France because of domicile - first downside - 2 tax forms per year to fill out, but because of double taxatiuon treaties no extra tax to pay.

Your living expenses in France will be UK tax deductible (but not those of your family).  Your travel expenses will also be tax deductible.  But - and here is a cruncher - this is applicable for the first 12 months only.  After that they are considered as payment in kind and are taxed at your highest tax rate.

 

Next downside, getting medical and other cover for your family.  They would need an E106 or some other form - either of which has a limited validity.  You would be covered by an E111 - but this has quite limited cover.

 

As Penny wrote - doesn't look worth trying it on.

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Thanks all for your messages - really helpful - however the last note from AndyH4 and the one from teamedup highlighted a significant issue for me. Health cover. Living in France and earning in Switzerland means I am not allowed a carte vitale due to the Swiss not being in the EU or in the EEA. My wife has significant health past history  - hence the French insurers won't cover us at all  so we have to pay for private cover in Switzerland due to a legal requirement that they have to cover us on account of my employment there which just about covers us in the border regions but considering the complicated nature of my wife's conditions finding an appropriate specialist is almost impossible.  Despite "layman's" claims to the contrary I am not impressed by the quality of healthcare in Switzerland (I am a medical doctor so I do know what I am talking about). An E106 and E111 etc only covers one for a few months and then stops being valid on account of where I earn. Hence we actually derive nothing (or almost nothing) from each respective country's tax funded systems. Please also note I am perfectly willing to pay tax not escape it or evade it - it just seems to me that it's rather unfair that I cannot volunteer to pay tax in the UK on the grounds that I have a house there and am still contributing to the economy there!
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"What is to stop me paying UK tax and NI on my income if I am in the UK more than 91 days per year on average?"

1. The UK tax man usually states that you are liable for tax where you sit when you earn the money so why is the Swiss Mr Brown not claiming his kg of flesh ?

2. Spending more than 91 days in UK would seem to make you liable for UK tax etc though double taxation agreements would take into account tax already paid in other countries. When deducting the days of arrival and departure this gives a big chunk of the year.

3. Under UK tax rules travel from home to usual place of work is not an allowable expense and even for those whose base is at home this is restricted to 2 years.

4. You have described a potentially nightmare scenario - as an accountant in an earlier life I always recommend taking professional advice even though others seem to believe that the you only need to ask the patrons of the local Public Bar. But it's your money. 

John

not

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