Leaving a country: questions to settle before you go

What this covers

Leaving a country for tax means ending your tax residence there, or changing how it applies to you, after you move abroad. Each country sets its own rules for the date you stop being resident, whether the tax year is split, which income it can still tax, and whether leaving triggers tax on gains you have not yet realized. Citizenship-based systems add another layer, because leaving the country does not end the tax link at all.

Find out which date counts as your departure

Countries do not always use the day you fly out. The Canada Revenue Agency says you usually become a non-resident of Canada for income tax purposes on the latest of three dates. They are the date you leave, the date your spouse or dependents leave, and the date you become a resident of your new country.

In the United Kingdom, GOV.UK says you may be non-resident the day after you leave, depending on your situation. Whether that applies is decided under the Statutory Residence Test and its split-year rules.

Write down every candidate date before you go. That includes the day you move out, the day family members move, the day you start work abroad and the day you take up a home in the new country.

Check whether the tax year is split

Some countries divide the year you leave into a resident part and a non-resident part. Others apply a reduced allowance or treat the whole year as resident.

HMRC's guidance note says a UK tax year can be split into a UK part and an overseas part. Cases 1 to 3 cover a departure from the UK. Every condition of a case must be met, and priority rules decide which case applies when more than one fits. See split-year treatment.

The ATO says a person who leaves Australia and becomes a foreign resident gets a reduced income threshold for that year, worked out from the number of months they were resident. The amounts change, so check the current ATO page.

List the ties you keep behind

Leaving the country does not always mean leaving its tax net. Many tests look at what you keep.

The Canada Revenue Agency says that if you keep residential ties with Canada you are usually a factual resident rather than an emigrant. It gives giving up your Canadian home and setting up a permanent home abroad as examples of severing ties. In the UK, the sufficient ties test counts family, accommodation, work and other ties, and the more you keep the fewer days you can spend in the UK before you are resident again.

The UK also has temporary non-residence rules. HMRC's guidance note says they can apply if you had sole UK residence in 4 or more of the 7 tax years before departure and your period of non-residence lasts 5 years or less. If they apply, you may have to pay UK tax in the year you return on certain income and gains received while you were away, such as some pension payments and capital gains.

• A home you keep, rent out or leave available
• A spouse, partner or children who stay
• Work you still do in the country, even remotely
• Bank accounts, pensions, property and business interests
• Memberships, registrations, a driver's license and health cover

Ask whether leaving counts as selling your assets

Some countries treat you as selling certain assets at market value on the day you stop being resident. This is often called an exit tax or departure tax. No cash changes hands, but a gain can still be taxed.

In Canada, the CRA calls this a deemed disposition. It lists exceptions that include Canadian real or immovable property, pensions, annuities and registered plans such as RRSPs. If the total fair market value of all property you owned when you left was more than $25,000, the CRA says you must complete Form T1161. Gains are worked out on Form T1243. Payment can be deferred by election on Form T1244, filed by April 30 of the year after you emigrate, and security is required above a set amount of federal tax.

In Australia, the ATO says you are taken to have disposed of your CGT assets at market value when you stop being resident, except taxable Australian property such as Australian real estate. An individual can choose to disregard those gains and losses instead. The assets are then treated as taxable Australian property until they are sold or you become resident again. The ATO also says the full CGT discount is not available for assets bought after 8 May 2012 and sold after you became a foreign resident.

These are examples, not a full list. Other countries have their own departure rules, and a treaty may affect the result.

Know that US citizens cannot leave US tax by moving

The United States taxes its citizens on worldwide income wherever they live. Moving abroad does not end that. Only giving up citizenship, or for green card holders ending long-term residence, changes it.

The IRS says the expatriation tax rules in sections 877 and 877A apply to US citizens who have renounced their citizenship and to long-term residents who have ended their US resident status. A person is a covered expatriate if any one of three tests applies. Average annual net income tax for the five years before expatriation exceeds an inflation-adjusted amount. Net worth is $2 million or more on the expatriation date. Or the person fails to certify on Form 8854 that they met all federal tax duties for the five years before.

For a covered expatriate, the IRS says all property is treated as sold at fair market value on the day before the expatriation date, with an exclusion amount that changes each year. The IRS also says a $10,000 penalty may apply for failing to file Form 8854 when required.

Tell the tax office and the registry that you have gone

Most countries expect you to report the move. The form and timing vary.

GOV.UK says you must tell HMRC if you are leaving permanently, working full-time abroad for at least a full tax year, or are a foreign national leaving the UK. People who do not usually file a Self Assessment return fill in form P85. People who do file one complete the residence pages, form SA109. GOV.UK says you cannot use HMRC's online services to tell them you are leaving.

The CRA asks emigrants to enter their departure date on page 1 of their return. Civil registration can be separate from tax. In Germany, section 17(2) of the Federal Registration Act says a person who moves out and takes no new home in Germany must deregister with the registration office within two weeks of moving out.

Deregistering or telling the tax office does not decide your residence on its own. It is one record among many.

Common misconceptions

Questions to take to a professional

1. On which date would each country treat me as having left, and what evidence supports that date?
2. Does the year I leave get split, and what conditions must I meet for that?
3. Which ties am I keeping, and could they keep me resident or bring me back into residence?
4. Does leaving trigger a deemed sale of any of my assets, and can payment be deferred?
5. Which forms must I file to report the move, and by when?
6. Could temporary non-residence rules tax income or gains if I return within a few years?
7. How will the new country treat assets I bring with me and gains already built up?

Questions people ask

Sources

• Tax if you leave the UK to live abroadOfficial guidance
• Tax on foreign income: UK residence and taxOfficial guidance
• RDR3: Statutory Residence Test (SRT) notesOfficial guidance
• Leaving Canada (emigrants)Official guidance
• Dispositions of property for emigrants of CanadaOfficial guidance
• How changing residency affects CGT (Australian Taxation Office)Official guidance
• Living overseas and becoming a foreign tax-resident (Australian Taxation Office)Official guidance
• Expatriation taxOfficial guidance
• Bundesmeldegesetz (BMG) § 17 Anmeldung, AbmeldungPrimary law