Chartered Management Accountants | Milton Keynes
Residence is determined by a number of factors including how many days you spend in the UK, where you work and where you have homes. A person may be resident for tax purposes in more than one country in which case their status may be determined by tax treaties between the two countries.
Residence is particularly relevant for income tax and capital gains tax.
The general rule is that a UK-resident is liable to pay UK tax on all income and gains from anywhere in the world. A non-resident is only liable to pay UK tax on UK sources of income and gains. For non-residents, earnings arise in the UK only to the extent that the work was carried out in the UK, or a business has a permanent establishment in the UK. This general rule is subject to many exceptions and detailed provisions.
Residence can also be relevant in determining whether an employee is entitled to claim tax relief for certain travelling expenses.
Whether you are a UK resident for a tax year or not is governed by a statutory residence test. Under this test, you first consider whether you are automatically non-resident by following these tests in this order:
If none of the three tests are passed, you then consider whether the person is automatically resident by following these tests in this order:
If none of the six tests above determine residence, you use the sufficient ties test.
There are four ‘ties’:
There is also a fifth tie for individuals who have been UK-resident in any of the three previous tax years:
UK-residence is then determined by:
Generally, the more days a taxpayer spends in the UK, the fewer ties must be met to be non-resident. This is also affected by whether the taxpayer arrived or left the UK during the tax year, and whether they were UK-resident in any of the three previous years.
A taxpayer who has not been UK-resident for the last three tax years wants to calculate if they will be UK resident in the current tax year. If they spend:
A day spent in the UK usually means a day when the taxpayer was within the UK or its territorial waters at midnight at the end of that day.
There are some exceptions to this, such as if a person’s departure from the UK is delayed for unavoidable reasons, such as because of illness or an unexpected travel disruption.
A taxpayer is usually UK-resident or non-resident for a whole tax year. There is an exception known as the split year treatment where a taxpayer may be regarded as UK-resident for part of a tax year and non-resident for the rest in which they start or stop residence in the UK. In order to qualify the taxpayer must satisfy one of the split year rule cases.
The date of change of residence status may be:
It is not the date of arrival or departure so it is important to check the exact rules in each situation.
There are also quite complex provisions which apply in the year of death, and particularly if the taxpayer has recently moved abroad.
This is a very broad summary of detailed and complex regulations, which are supported by detailed guidance. Contact us so that we can advise you on your specific situation.
Also, see our page on the rules relating to domicile.
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