The statutory residence test and the tax implications in the UK
Are you resident in the UK?
In summary, for any tax year, if you are present in the UK for 183 days or more, you are resident in the UK. Provided that you are in the UK for less than 183 days in a tax year and you meet one of the three automatic overseas tests, you will be considered not resident in the UK. If you do not meet one of the automatic overseas tests and you do meet one of the automatic UK tests or the Sufficient Ties Test, you will be resident in the UK. Otherwise, you are not resident in the UK.
Firstly, you need to consider the automatic tests in the following order to determine whether or not you are resident in the UK:
The first automatic UK test:
You spend 183 days or more in the UK in the tax year.
You will automatically be treated as resident in the UK and you should not consider any of the tests below.
The three automatic overseas tests:
1.You were resident in the UK in one or more of the previous three tax years and you spend fewer than 16 days in the UK in the tax year; or
2.You were not resident in the UK in each of the previous three tax years and you spend fewer than 46 days in the UK in the tax year; or
3.You work full-time overseas without any significant breaks during the tax year. There are a number of criteria which need to be met including working sufficient hours overseas, spending fewer than 91 days in the UK and working less than 31 days in the UK.
You will automatically be treated as not resident in the UK and you should not consider any of the tests below.
The other two automatic UK tests:
2.You have a home in the UK for a period of more than 90 days, are present in that home for at least 30 separate days during a tax year and there is a period of 91 consecutive days (some of which fall in that tax year) where you have no home overseas or if you have a home but have not been present in one home overseas for more than 30 days; or
- You work full time in the UK (over 3 hours per day) for any period of 365 days with no significant break (at least 31 days) and more than 75% of the total number of those work days are in the UK,
You will automatically be treated as resident in the UK and you should not consider any of tests below.
If you do not meet either of the automatic tests then the following ties to the UK are taken into account:
A family tie
If your spouse or civil partner (unless you are permanently separated), your partner (if you are living together) or your child if under 18 years old are resident in the UK then you have a family tie.
An accommodation tie
If you have a place to live in the UK which is available for a continuous period of 91 days or more during the tax year and you spend one or more nights at your own home or you spend 16 or more nights at a close relative’s home then you have an accommodation tie.
A work tie
Normally, if you do more than three hours work per day in the UK for at least 40 days in the tax year then you have a work tie.
A 90-day tie
If you have spent more than 90 days in the UK in either or both of the previous tax years then you will have the 90-day tie.
A country tie (only if you were resident in the UK for one or more of the previous tax years)
If you were present in the UK at midnight for more days in the tax year than any other country then you will have a country tie.
Assuming the automatic tests above are not met, you will be treated as UK resident in the tax year if you have at least the following number of ties:
|Days spent in the UK in current tax year||UK resident in any of the last three years||Not resident in the UK in any three of the preceding tax years|
If the automatic tests do not apply and you do not satisfy the UK ties, you will be treated as not resident in the UK for that tax year.
What happens in the year you leave or return?
Provided that you either leave or come to the UK permanently and you meet certain conditions, you should be able to claim split year treatment for income tax purposes. This means that all your income and capital gains up to the date of departure or after the date of return is added to your UK income for the period you were non-resident when establishing the income and gains which are liable to UK in the relevant tax year.
This is a brief summary further guidance is available in RDR3 which is available on the Government website.
Don’t forget to tell the taxman when you go.
If you are a British or EU citizen, you should continue to get personal allowances while you are abroad. Other taxpayers may be entitled to personal allowances particularly if they are living in the country of which they are also a national, but it does depend on the country’s Double Tax Treaty with the UK.
So what is taxed?
A UK resident pays tax on all his/her income and capital gains arising in the world. There are special rules (which are not dealt with here) for individuals who are not domiciled in the UK. Domicile is not simple and just because you are resident in a country, does not mean that you are domiciled in that country. If you are domiciled in the UK and go to live abroad but you keep your British passport, you will probably remain domiciled in the UK even though you will not be resident.
Generally, you are only assessed to tax on income received in the UK. The main exception is where you work for the Crown, the income is taxable in the UK wherever it is earned. There are double tax treaties with some countries which means that some income received from the UK may be taxed in your country of residence and may not be taxable in the UK.
Income from a property in the UK is usually taxed in the UK wherever you reside.
Tenants or agents have a responsibility to deduct basic rate tax from any rent paid to non-resident landlords. If you wish to continue receiving UK rental income gross whilst you are non-resident, you should submit Form NRL1 to the HMRC Centre for Non-Residents. HMRC should then grant approval for rents to be paid to you gross and notify the tenant or agent as appropriate. Your rental profits will still remain taxable in the UK but this will help with cash-flow. The property income may be taxable in your country of residence.
Bank interest received
You will need to declare the income on your tax return but you may be able to claim double tax relief, so there may be reduced or no tax to pay in the UK. The interest may be taxable in your country of residence.
Other income arising in the UK may still be taxable in the UK depending on the Double Tax Treaty with your country of residence.
Income tax refund when you leave
If you have been employed in the UK, you may have paid too much income tax under PAYE, depending on when you leave your job in the UK. You may be able to claim a refund on leaving the UK using form P85. You will need to declare the income you expect to receive in the UK after you have left (including property income) which will be taken into account when calculating your refund. Alternatively, HMRC may ask you to submit a Tax Return for each year. There is no corresponding refund of National Insurance contributions.
Capital Gains returns on land and buildings and tax payable within 60 days of completion
Where land or buildings are disposed, an on-line return must be made and any Capital Gains Tax payable has to be paid within 60 days of completion. For UK resident taxpayers where there is a Capital Gain and Capital Gains Tax to be paid on a residential property only, an on-line return must be made and the tax must be paid within 60 days of completion. The return has to be made whether you complete a self assessment return or not. If you complete a self assessment return a reasonable estimate can be paid within 60 days of completion and an adjustment made when the tax return for the relevant year is filed.
Generally, there is no Capital Gains Tax on any other assets disposed unless you return to the UK within five years of leaving.
You should ascertain the tax reporting requirements in the country where you reside and consult a local tax adviser, if necessary.
© Thandi Nicholls Ltd 2023 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, S Thandi or M S Bains cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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