Could a world cruise reduce your tax burden?
The rise of remote work in the post-COVID era has inspired innovative approaches to living and working. One such approach is an extended world cruise, lasting up to three years, promoted by an enterprising cruise liner. This unique proposition allows digital workers to circumnavigate the globe while potentially avoiding global taxes, essentially transforming them into ‘Digital Tax Nomads.’
Understanding UK tax residence and its implications
UK tax residence usually means being taxed on worldwide income, regardless of its source. However, non-residence exempts UK tax on overseas income and gains, making a three-year cruise an appealing prospect for many UK residents.
Tax residency varies from country to country, largely dependent on the time spent there during a tax year. In the UK, HMRC’s Statutory Residency Tests determine tax residence based on factors such as time spent in the UK, employment in the UK, and connections to the UK; the maximum allowable days in the UK before being considered a tax resident can range from 16 to 182 days based on individual circumstances.
Navigating the rules of breaking UK tax residence
If you’re considering becoming a digital nomad, it’s crucial to understand the rules of breaking UK tax residence. For instance, if you plan to take a three-year world cruise with the intention of achieving non-UK tax residence, professional advice is recommended to ensure you don’t exceed your maximum allowed days in the UK each tax year.
Working remotely for a UK employer while on a cruise ship could qualify for the HMRC non-residence test, provided you don’t return to the UK for more than 90 days each tax year. Furthermore, no more than 30 of these days can be spent working in the UK, and you must not have a break of over 30 days from working overseas.
The complexities of splitting the tax year and temporary non-residence
Splitting the tax year into overseas/UK parts can be beneficial, allowing overseas sources to be removed from UK tax. However, the conditions for this are stringent. For digital nomads, fulfilling these conditions could prove challenging.
The UK also has anti-avoidance legislation that taxes capital gains on assets sold to non-UK residents if the period of non-residence is less than five years. Therefore, to escape UK capital gains tax on pre-existing assets sold while out of the UK, you would need to extend your cruise or stay outside the UK for at least five years.
Considering tax residence elsewhere and floating tax havens
While the cruise continually moves worldwide, it’s prudent to consider potential residency issues in various global jurisdictions. Knowing the planned time in each area can help avoid unexpected tax liabilities.
For those with the freedom to work anywhere, there are options to reduce worldwide tax burdens, such as tax havens that offer full tax exemption. However, these often require tax residence and may not offer the lifestyle facilities you desire.
Considering relocating to another jurisdiction and want to understand the tax implications?
If you’re considering relocating to another jurisdiction and want to understand the tax implications fully, please get in touch with GSB Capital for further information.
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.