THE LITTLEST HOBO: IS BEING A TAX NOMAD A LUCRATIVE STRATEGY, OR AN EXPENSIVE MISTAKE?

Introduction

“There’s a voice that keeps on calling me
Down the road, that’s where I’ll always be
Every stop I make, I make a new friend
Can’t stay for long, just turn around
And I’m gone again

Maybe tomorrow, I’ll want to settle down
Until tomorrow, I’ll just keep moving on”

The Littlest Hobo (Theme From)

Is there  a more culturally relevant icon that better sums up the spirit of the tax nomad than the Littlest Hobo?

What’s that you say? I need to update my cultural references? Maybe – but don’t knock a cultural titan.

But what is a tax hobo… sorry, tax nomad?

And does it make sense for you, who’s already hearing the voices in your head that keep on calling you? [Aside – seek medical attention].

Well, let’s show the dog the bone.

What’s the plan?

The plan, at least, is rather appealing.

Swap your old desk for working from the beach?

Swap a set of grey skies and a cold wind for blue skies and warm weather all year round.

Sign me up.

Indeed, with the improvements in technology, and perhaps a change in attitude to remote meeting / working, the practical side of being an overseas, digital entrepreneur, investor or 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.

The perpetual traveller.

Like our vagrant canine friend.

In theory, at least, it is possible to wander the world, moving on before the relevant tax authority asks you to join their little tax club.

One can be resident nowhere (and in multiple places) for tax purposes.

However, I am nothing if not a pessimist 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 for tax purposes.

Additionally, this is  not only likely to help on tax matter but also more mundane things like being able to open a bank account. Financial Institutions tend not to like those of ‘no taxed abode.’ I believe the Littlest Hobo remained unbanked most of his life. Sad really.

To summarise, our cunning plan is two pronged:

• Dis-establish residency in previous home country (“OLD”) by reference to the Statutory Residency Test; and
• Create a new ‘home base’ (“NEW”) in a favourable jurisdiction.

Dis-establishing OLD residence

The first aim is to ensure one is no longer resident for tax purposes in the OLD country.

Of course, this process will differ from country to county.

In the UK, it’s a case of concluding that one is no longer UK resident under the Statutory Residence Test (“SRT”). This would be claimed on the next relevant tax return. All the same, it is perhaps sensible to provide written confirmation to HMRC (and for those who have been in, say, employment, a specific form allows an application for a refund of overpaid tax).

In contrast, some jurisdictions have a much more formalistic process to departure, such as South Africa.

Tax implications of breaking OLD residence

This is a tax article, so I assuming that you might be, even if just a tincy wincey bit, interested in reducing your taxes[1].

The position will depend on the OLD country and where the income and gains arise.

Indeed, the classic case of where benefits will be limited is for US Citizens / Green Card holders. These will be taxed on a worldwide basis regardless of whether they break US residence.

However, more generally, unless a country is a low tax jurisdiction, it is likely to continue to levy tax on any income and gains that arise in that OLD country.

There’re some notable exceptions. But one example is that the UK will disregard most UK dividends paid to non-resident recipients (there are some anti-avoidance rules to consider).

The final point is that you need to make sure you don’t end up from suffering from ‘out of the frying pan, into the fire syndrome’.

This is a highly technical concept. In other words, NEW does not charge higher taxes on those income and gains.

I come to that next.

 

Choosing a NEW home base

Assuming one is going to take my advice and not continually move from one jurisdiction to another, then one next needs to choose a tax base.

Planting that flag.

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 accidentally).

However, constructing a tax base where one is liable to tax does not necessarily mean that your hobo / nomad dreams have been thwarted.

I am not here to persuade anyone to leave the UK.

I am not here to try and attract people to any particular place

Both of those are personal decisions by an individual and their family. Is where they live now the best for them at this point in time? Is somewhere else better?

Of course, nowhere is perfect.

There are usual suspects. Monaco and the UAE have seen a lot of people moving there recently. These are the ‘usual suspects’

However, there are perhaps hidden gems too. Ireland, for the non-Irish domiciled is attractive. Italy, Cyprus and Malta to name but a pawful.

 

EXAMPLE

Simone is born and bred in the UK.

She has had a successful career in tech and now makes a living from the savvy investments she has made over the years, mainly in UK tech businesses.

She also has some other UK personal investments in the form of let property and savings accounts in the UK. These are all subject to high rates of income tax (45%) on dividends and other income

Simone had been visiting the UAE for some time. She has purchased a nice villa in Dubai and has obtained a golden visa there. She has also spent enough time in the last calendar year to obtain her personal tax residency in the UAE.

In addition, she will spend up to two months per year in Thailand – where her expertise is being used by a social enterprise to help encourage local web and game developers.

She will also spend some 4-6 weeks in the UK each year, cooling off from the UAE heat.

She would also like to spend some of the summer – maybe a month or so – in Portugal where she has some other contacts who are in the blockchain space.

Simone is likely resident for tax purposes in the UAE only. She does not spend enough time in the other places to become resident there.

Her UAE tax is likely to be nil. She is not running a business under a trade licence. Her personal investments are outside the scope of UAE taxes.

She does have UK source income. Her dividend income is ‘disregarded income’ for UK tax purposes and not taxable (subject to an anti-avoidance rule). However, she will have a UK tax exposure on her UK rental and savings income.

Conclusion

To conclude, it is certainly possible to be a tax hobo.

What? I really should stop calling it that and refer to it as tax nomad? Ok, but all I can see is you have no feel for canine based TV nostalgia.

However, for the reasons set out above, my preference is to actually plant a flag in the sand (it doesn’t have to be sandy, btw) somewhere and create a tax home base.

As I say, it will have tax and other practical benefits.

Maybe tomorrow, I’ll want to settle down
Until tomorrow, the whole world is my home

I need to go… sniff… as I think I have…sniff… something in my eye…

 

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[1] I know this is a bad thing these days. But if you do move abroad you should not that you have committed the strict liability offence of tax dodging. Your intention doesn’t matter. Ask expats in Dubai. You might as well embrace this fact, dear reader.