A tax exile is a person who chooses to leave a country with a high tax burden and instead, reside in a foreign nation or jurisdiction which takes a lower portion of earnings. Going into tax exile is a means of tax mitigation or avoidance.
In most countries one becomes liable to be taxed in that country if one is resident there. For taxation, residence is often defined as spending six months (or some other period) in any one year in the country, and/or having an abiding attachment to the country, such as fixed property.
United Kingdom rules
A very simplified 'rule of thumb' is that under UK law a person is "tax resident" if that person meets any of the residency tests set out under the Statutory Residency Test introduced on 6 April 2014. The reality of the matter is far more complex and unclear.
United States rules
Under the Internal Revenue Code, the income of a U.S. citizen is taxable without regard to the citizen's place of residence, and, significantly, without regard to where the income is earned or produced. U.S. citizens can completely eliminate tax liability only by both moving abroad and renouncing citizenship, but if they continue to earn money inside the United States, they will still be liable for taxes as if they were guest workers. However, substantial tax savings can be had by U.S. citizens living abroad through the Foreign Earned Income Exclusion (FEIE).
The process of renunciation requires the citizen to appear at a U.S. embassy or consulate, and sign various documents stating he or she is of good mental health, is acting without force or duress, and realizes that the renunciation is irrevocable. It is a common misbelief that one must have another citizenship when they renounce. However, those who will be rendered a stateless person after their renunciation are warned of the consequences.
The State Department then reviews the documentation and may decide to bar the person from entering the United States – even for visits. This decision is based upon whether the person renouncing is not doing so for tax reasons alone. For the purposes of the IRS, the effective date of the renunciation becomes the final day that income taxes are due – assuming that all U.S. assets are liquidated and have left U.S. jurisdiction. See also Reed Amendment (immigration).
An immigrant who has been granted permanent resident status in the United States is generally treated as a citizen for tax purposes unless his or her residency lapses. An immigrant not legally admitted for permanent residence (such as a guest worker) becomes liable for U.S. taxes if he or she spends more than 122 days in the year in the United States.
Famous tax exiles
- Bad Company moved to Malibu, California, in 1975 to avoid what Mick Ralphs described as “ridiculously high tax in England”.
- David and Frederick Barclay live on Brecqhou, one of the Channel Islands, located just west of Sark, and give their address as Avenue de Grande-Bretagne, Monte-Carlo.
- John Barry, the composer of 11 James Bond films, moved to the United States in 1975 where he resided until his death in 2011.
- In 1968, Shirley Bassey started living as a tax exile, and currently lives in Monte Carlo.
- Marc Bolan relocated to Los Angeles in 1973 due to the UK's income tax, staying there until relocating to London in mid-1976.
- David Bowie moved to Switzerland in 1976, first settling in Blonay and then Lausanne in 1982.
- Michael Caine moved to the United States in the late 1970s to avoid the 83% tax on top earners that existed in Britain at the time. He spent several years in the United States before returning to Britain.
- Ronnie Corbett and Ronnie Barker spent 1979 in Australia to avoid taxation on their previous year's income.
- Noël Coward left the UK for tax reasons in the 1950s, receiving harsh criticism in the press. He first settled in Bermuda but later bought houses in Jamaica and Switzerland (in the village of Les Avants, near Montreux), which remained his homes for the rest of his life.
- French popular actor Gérard Depardieu took up residence in Belgium in 2012 to avoid tax increases on the wealthy planned by the Hollande administration.
- Marvin Gaye first relocated to Hawaii from Los Angeles to avoid problems with the IRS in 1980. Later that year, Gaye relocated to London following the end of a European tour, then moved to Ostend, Belgium in February 1981. He recorded his final album Midnight Love (released in March 1982) while living in Belgium.
- Stelios Haji-Ioannou who was quoted as saying: "I have no UK income to be taxed in the UK." Source: David Leigh, Monday, July 10, 2006, The Guardian.
- Guy Hamilton, the director of four James Bond films, became a tax exile in the mid-1970s when he was originally hired to direct Superman (1978). Because of the U.K. tax laws, he could remain in the United Kingdom for 30 days a year. As a result, fellow Bond director John Glen has directed five films in the franchise.
- The band Jethro Tull moved to France from Britain in 1973, and while there, attempted to produce a new double album, but abandoned the effort.
- Tom Jones also moved to Los Angeles for tax purposes following the election of Harold Wilson as British prime minister in 1974, who put income tax up to 83% for top earners.
- In 1978, the members of the band Pink Floyd spent exactly one year outside of the United Kingdom, also for tax reasons.
- During the early 1970s The Rolling Stones became tax exiles. Their experience inspired the title to their famous album Exile on Main St. According to a 2006 article in the Daily Mail, "The Rolling Stones have paid just 1.6 per cent tax on their earnings of £242 million over the past 20 years."
- Cat Stevens became a tax exile within the first years of the 1970s, moving to Brazil. The result of this was the creation of his album Foreigner, the title song referring to his self-imposed move to South America.
- Rod Stewart left Britain for Los Angeles in 1975 because 83% of his income was going in tax. The title of Stewart's 1975 album Atlantic Crossing is a reference to his repatriation in the U.S.
In popular culture
- The Tax Exile was the title of a 1989 novel by Guy Bellamy.
- In various versions of The Hitchhiker's Guide to the Galaxy by Douglas Adams, the rock star Hotblack Desiato is reported as "spending a year dead for tax reasons". Also in The Hitchhiker's Guide to the Galaxy, the character of Veet Voojagig "was finally sent into tax exile, which is the usual fate reserved for those who are determined to make a fool of themselves in public."
- "Mick Ralphs Biography". Mickralphs.co.uk. Retrieved 2013-01-23.
- Chris Tryhorn, City correspondent (2004-06-23). "Who are the Barclay brothers? | Media | MediaGuardian". Guardian. Retrieved 2013-01-23.
- "David Bowie". Montreuxmusic. Retrieved 2013-01-23.
- "Michael Caine comes full circle". WalesOnline. 2009-11-02. Retrieved 2013-01-23.
- Corbett, Ronnie. And it's goodnight from him.... Penguin, 2006. ISBN 978-0-7181-4964-2. p. 194.
- Lesley, p. 355
- Lesley, Cole. The Life of Noël Coward. Cape, 1976. ISBN 0-224-01288-6. p. 395
- Collins, Laura (25 February 2013). "L'Etranger: Gerard Depardieu and France part ways". The New Yorker. Condé Nast: 58–65. Retrieved 6 July 2013.
- "Rocker-actor Lenny Kravitz has reportedly been tapped to portray Marvin Gaye in filmmaker Julien Temple's forthcoming biopic". WENN. Nov 20, 2012.
- "Stingy Stones avoid tax on £240m fortune | Mail Online". Dailymail.co.uk. 2006-08-02. Retrieved 2013-01-23.