From 6 April 2013 there are a new set of rules that will determine your UK tax residence status, which in turn will decide how your income and capital gains are taxed in the UK.
The old rules (click here for details) were a recipe for confusion and error, governed by common law cases and an assortment of HM Revenue & Customs (HMRC) guides, practices, customs and extra-statutory concessions, although many of the principles that were used under the old rules are enshrined in the new law.
The new law seeks to provide clarity and this has largely been achieved, but the rules are detailed and need to be examined carefully, especially if you are not either “automatically non-resident” or “automatically resident” under the first two parts of the test (click here for details)).
The third part of the new test deals with those whose status cannot automatically be determined, and works by referring to a Sufficient Ties Test, whereby the number of connections to and level of days spent in the UK in a tax year are combined to decide status. The Sufficient Ties Test is slightly different for “Arrivers” coming to the UK than for “Leavers” departing the UK. Leavers (i.e. those who have been UK tax resident previously) could find it difficult to establish non-residence, as HMRC have always believed that there is an “adhesive” element to long term UK tax resident status and have shaped the rules for Leavers accordingly.
The Sufficient Ties taken into consideration under the third part of the test are:
Family Tie - whether spouse/civil partner/common law partner and/or minor children live in the UK. There are certain exceptions for minor children who are in the UK for full-time education.
Accommodation Tie - whether there is a place to live in the UK (which can be rented and/or a holiday home) that is available for 91 days or more in the tax year, and where at least one night is spent there. However, it is possible to spend up to 15 nights per tax year in the accommodation of a close relative without falling foul of the rules).
Substantive Work Tie - whether 40 or more days in the tax year are spent working in the UK. A day counts towards this test when more than 3 hours of work are carried out in the UK.
90 days Tie - whether more than 90 days are spent in the UK in either of the two previous tax years.
Country Tie - whether more days are spent in the UK in the tax year than any other single country (this tie only applies to “Leavers”).
Once the number of ties has been established, the following table is referred to in order establish whether or not UK tax residence is in point for a given tax year:
There are a number of issues to consider arising from the new rules. Among these are:
This is a massively important change to the UK’s tax laws and if you are in any doubt we would urge you to review your status as soon as possible. Non-residence can reduce or eliminate your UK tax liabilities but the new rules are complex and could lead to pitfalls for the unwary. Our team has over 30 years of experience advising on UK tax residence/domicile issues. Click here for further details of the services we offer to “Expats”.
Please click here for a further detailed summary of the changes to the UK tax residence rules.
This article is for broad guidance purposes only and is no substitute for a proper review based on individual circumstances. If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on +44 (0)1962 856 990 or firstname.lastname@example.org
By Nick Day of Tax Innovations - email@example.com - 01962 856990