HMRC has created guidelines on its website to help you understand your tax residency status. The following diagrams guide you through a streamlined tax residency process. If you reside in the United Kingdom but are not a resident of the United Kingdom (i.e. You are a permanent resident abroad), you are only subject to UK tax on income and profits made in the UK. If certain conditions are met, your foreign income and profits may be excluded from UK tax liability. However, this is a complex issue and you should consult the services of a foreign tax planning specialist to avoid unknowingly violating tax laws. In some cases, you may be based in the UK and another country at the same time. This is called dual residency. When it comes to tax law, every country is different, so you should seek advice from a tax expert. In some cases, countries apply a double taxation treaty with the United Kingdom. This means that if you pay tax on an amount earned in one country, you are not taxable in your other country of residence. If you are an urgent client, we can help you find your UK tax residency position, please contact your client managers and we will arrange an interview with one of our experienced accountants.
However, as mentioned above, Crunch does not offer advice in this area and we recommend speaking to a tax residence expert after our initial conversation. Anti-avoidance provisions are in place to prevent individuals from leaving the UK for a short period of time in order to earn significant income or capital gains. A person must be a non-resident for a certain period of time, otherwise they will be taxed on certain types of income and capital gains in the year of their return to the UK. You do not automatically reside in the UK when you leave the UK to work abroad full-time. If you spend a lot of time travelling in and out of the UK, you should keep a diary of where you are each day, and especially whether or not you are in the UK at midnight each day. This way, you can take into account your residency status and, if necessary, assess it yourself. In order to determine your residency status under the TRS, you must first check whether or not you pass one of the automatic tests abroad. If you don`t, you`ll need to check whether or not you pass one of the UK automatic tests. If you do not take any of the automatic tests abroad or the automatic tests in the UK, you will need to review the test to determine what links are sufficient to determine your position as a tax residence. A move from the United Kingdom may be made on short notice, with the person intending that his or her non-residence has immediate effect. However, for tax purposes, the date on which non-residency begins and ends is defined by the Legal Residence Test (TRS). Due to the complexity of legal residency, it is always advisable to seek advice from a tax professional to determine your residency status.
You must inform HMRC if you leave the country or become a non-resident. However, you can still be taxable on UK income, including pensions, rental income, bank interest and earned income. You may need to complete a self-assessment tax return to report this income. However, you do not need to inform HMRC if you have already claimed tax relief under the double taxation treaty. If none of the automatic residency tests are met, then the sufficient fixation test must be taken into account. Your UK residency status will affect whether you have to pay tax on your foreign income in the UK. There are four automatic tests overseas, each making you a UK tax non-resident. They are detailed in the HMRC guidelines, which can be found on GOV.UK. Broadly speaking, they are as follows: Residents generally pay UK tax on all their income, whether it comes from the UK or overseas. However, there are special provisions for UK residents whose permanent residence (“domicile”) is abroad. The basic rules are that you are considered a resident of the UK if you have spent more than 183 days in the UK. Alternatively, you are a resident of the UK if your only home is in the UK and you have owned, rented or lived there for at least 91 days in total, 30 of which must have occurred in the relevant tax year.
You will normally be treated as a resident of the United Kingdom in each tax year if you are physically present in the United Kingdom for 183 days or more in that year. In terms of number of days, this means that you will be physically present in the UK at midnight on 183 days or more. However, you are not a resident if you spent less than 16 days in the tax year in the UK. You are also not resident if you work full-time abroad and have spent less than 91 days in the UK (including a maximum of 30 working days). If you are physically present in the United Kingdom for 183 days or more in a tax year, you are a resident of the United Kingdom in that year. People are normally expected to be present in the UK on a given day if they are in the UK at midnight at the end of the day, but there are three exceptions to the midnight rule – people whose exceptional circumstances are beyond their control and prevent them from leaving the UK, those who are in transit, and those who live overseas but are working on coronavirus-related activities in the UK. For those working abroad, a few extra days inside or outside the country can drastically change your residency status and tax status. In such cases, it is advisable to consult an expatriate tax specialist.
They calculate your residency status for capital gains (for example, if you sell shares or a second home) in the same way as for income. Please note that some legal changes have been made to the SRT rules (for tax years 2019/20 and 2020/21 only) relating to time spent in the UK due to COVID-19. These changes apply in certain circumstances and only to certain elements of the SRT day counting tests. For more information on these new rules, please read our article here. People who feel affected by these changes should seek professional advice. For more information, please visit our What if I only visit the UK? When you leave the UK, you also need to determine whether you spent more days in the UK in the tax year than in any other country. Non-residents only pay tax on their UK income – they don`t pay UK tax on their foreign income. Please note that periods spent between 1 March 2020 and 1 June 2020 in the UK by people working on coronavirus (COVID-19) related activities, such as doctors or healthcare professionals, will not count towards residency testing.
Note that you must reside in an overseas territory so that days of stay in the UK are not taken into account. One of them is if you have your only home in the UK. This means that you have a home in the UK and spend 91 consecutive days there (including 30 days in the tax year), whereas during the tax year you do not have a home abroad where you spend some time. UK tax rules are complex and anyone trying to assess their residency status should seek expert advice – please contact your usual BDO contact or Simon Simpson. If you take one of the automated tests in the UK (and none of the automated tests overseas), you automatically reside in the UK for the tax year. Before April 6, 2013, there were different rules for determining your residency status. Since April 6, 2013, there is a Statutory Residence Test (SRT) that you must apply to your position. Another way to be automatically resident in the UK is if you work full-time in the UK during the year, without significant interruptions. The criterion of what “work” is is relatively broad and may even cover secondary activities. It is important to review the guidelines because they fully state the conditions and contain important definitions to help you understand if you meet the conditions.
If you are classified as a tax resident in the UK, you will be taxed on your worldwide income unless your permanent residence (“domicile”) is abroad. These include: Capital gains tax (CGT) may apply if you sell your home abroad or other assets, such as shares, which are subject to capital gains tax as opposed to income tax. You must calculate your residency status in the same way as for income tax, as described below. In short, UK residents are taxable on both UK and foreign income/profits. However, non-residents only pay CGT when they return to the UK or sell land or property in the UK. Residency status is determined for a full taxation year. However, if the person`s circumstances correspond to one of the split year treatment cases, the starting taxation year is divided into a period of residence and a period for non-residents. As these rules are complex, personalised advice based on individual circumstances is necessary. Regardless of your residency status, all income from the UK is taxable.
However, as a non-resident UK national, you are still entitled to the same personal tax allowances as a resident. Currently, the allowance is £12,500 for the tax year ending April 5, 2020. This can be offset by any UK income you may have, including bank interest, rental income and pensions. If you do not fall into any of the above categories, your position of residence will be determined by the number of “links” you have with the UK. “Links” to the UK include: the more ties a person has, the less time they can spend in the UK if they wish to be considered non-resident. Please note that the following table only applies if the person is an outgoing (a person who was resident in the United Kingdom in one or more of the previous three tax years).