Irrespective of the reason for the relocation, a home is something that brings certainty and peace of mind for most. Something that can often be daunting and disrupt that peace, is the relocation process and having to deal with the South African Revenue Service (SARS).
Determining Your Obligations as A South African Tax Resident
Even for expats relocating to the UK who have looked for greener pastures, it is important to keep in mind your residency status per your eFiling profile with SARS: resident or non-resident.
SA expats in the UK who are resident in SA for tax purposes, must declare worldwide income to SARS. This will be subjected to tax in SA. This is irrespective of their relocation to the UK and whether they believe they are under SARS’ radar or not. Equally important is that, to become a non-resident for tax purposes in SA, whilst living and working in the UK, a formal application process with SARS is required.
Those who have correctly updated their tax status to that of non-resident, are only liable to declare and pay tax in SA on income sourced from SA (e.g., a common example of this that we often see, is that of rental income for those who have not disposed of their South African property).
Becoming a non-resident does not extinguish your tax obligation due to SARS, it simply reduces the obligation to pay tax in SA from the scale of worldwide income down to income only sourced in SA.
Often the act of ceasing tax residency in SA is critical to an expats circumstances while abroad, as this may alleviate their exposure to double taxation by SARS and the HMRC. For most expats in the UK this is a step towards financial freedom.
Effectively Applying the Double Tax Agreement – DTA between SA and the UK
The DTA is a legal mechanism for those who still consider SA to be their real home. This allows you to update your status with SARS to a tax non-resident while keeping the door open to South Africa. Especially for those expats who wish to remain footloose.
It is imperative that expats keep in mind that simply moving abroad does not automatically cease your tax residency in SA under the DTA. To avoid being taxed by both SARS and the HMRC whilst living and working in the UK, the DTA relief needs to actively be applied for.
In order to update a status to that of non-resident for tax purposes in SA under the applicable DTA, the taxpayer must consider the ‘tie-breaker test’ typically outlined in Article 4. Aside from considering your key relationships, factors such as any affiliation to clubs, political involvement, where your pets are situated, your permanent home, economic interests and your habitual abode are also considered.
To correctly apply the DTA relief for income earned from the UK, a weighing up of the abovementioned factors will determine which country holds the primary taxing right. Where it can be proven that the UK has the primary taxing right, the DTA will deem the taxpayer exclusively resident therein. This will have the practical effect of ceasing tax residency in SA.
Bringing it Closer to Home
A suitable example to bring this closer to home for those South Africans residing in the UK, is the Oppenheimer case which was handed down by the First-Tier Tribunal Tax Chamber of the UK.
The case came down to the determination of where the taxpayer’s centre of vital interests were located, in this regard the court looked at the location of assets and wealth, significant events and friendships, hobbies, political involvement, philanthropic interests, cultural and business involvement, health service providers and homes.
The critical principle laid down when it comes to personal relations being –
“if the relationship with your spouse is the key relationship in your life, then it is going to be very hard to have a centre of vital interest separate from where your spouse has their home.”
Notwithstanding the above, your tax residency tie between the UK and SA can be broken at various levels and not solely on where your personal relations are.
The case demonstrates that a taxpayer’s residence status should be holistically assessed based on all relevant facts and circumstances.
With SARS Absence Does Not Make the Heart Grow Fonder
Taxpayers often omit to remember that under South African tax law they bear the burden of proving an amount, transaction, event or item is exempt or otherwise not taxable. South Africans who work and live abroad are cautioned to ensure their tax affairs are up to date, to avoid falling foul of SARS’ drive for full tax compliance.
Those who leave SA must be wary of merely assuming that they are already in SARS’ rear-view mirror from a compliance perspective.
The longer non-compliance is left and not addressed the more grave the consequences. This being for various reasons, let alone that non-compliance penalties and administrative fines often accumulate over time.
Bring Certainty and Peace of Mind Back into Your Home
The fact of the matter is that SARS knows a lot more about taxpayers than they would like to think. Working abroad does not change this. To avoid double trouble, rather be safe than sorry and ensure that you are tax compliant in SA.
