Insights 15.5.20 Author: Martina Fitzgerald

UK Tax Residency and its Impact on an Individual’s UK Tax Position

Insights 15.05.2020 Author: Martina Fitzgerald

This is a short guide to provide a general response to frequently asked questions concerning UK Tax Residency and its impact on your tax status in the UK. 

How do I know if I am resident in the UK  for tax purposes?

Since 6 April 2013, UK tax residency is determined by a Statutory Residence Test (SRT) which looks at the time an individual spends in the UK and what ties  they have to the UK. The SRT comprises three parts:

  • An automatic non-resident test
  • An automatic resident test
  • A sufficient ties test

It works as a flowchart. So, for example, where you meet one of the automatic non-resident tests, you do not need to consider the automatic resident tests or the sufficient ties tests. A link to our SRT guide can be found here. 

Can I be tax resident in more than one country?

Yes, it is possible for you to be resident in more than one country at any one point in time. This is due to the fact that every country operates different rules regarding residency.  It depends on the  time you spend in another country and if you wre born there.  In these circumstances the double tax treaty between the countries will usually aim to resolve any potential double taxation by the inclusion of the tiebreaker clause.

What’s the basis of taxation in the UK ?

For individuals who are UK resident they are subject to UK tax on their UK and worldwide income and gains as they arise, unless they are able to claim the remittance basis. However, UK sourced income and gains will still be taxed in the UK as they arise.

Can I claim the remittance basis of taxation?

If you are UK tax resident but not UK domiciled you may be eligible to claim the remittance basis. An individual who has a non-UK domicile as a matter of common law is deemed to be UK domiciled once they have been UK tax resident for 15 out of the immediately preceding 20 tax years.  This means that they are subject to UK taxes on their UK and overseas income.  If you have been in the UK for a shorter period, you can opt to pay UK tax on the remittance basis. In doing that, you only pay UK tax on income and gains that have been remitted, plus potentially an annual charge for the privilege of doing that.

I want to claim the remittance basis – what will it cost me?

You can claim the remittance basis of taxation but if you have been resident in the UK for 7 or more of the 9 preceding tax years, a fee becomes payable for the benefit of the remittance basis.  This fee is technically an additional amount of tax, known as the remittance basis charge (RBC).  The RBC is £30,000 per annum but it increases to £60,000 per annum when an individual becomes resident in the UK for 12 or more of the 14 preceding tax years.  By opting to be taxed on the remittance basis, you cannot claim the income tax personal allowance and the annual capital gains tax exemption.

What is a remittance? 

A remittance is when you bring overseas income and gains to the UK.  This is a complex area but briefly, a remittance can occur in many ways even through a related person. Payments made outside the UK can trigger a remittance if there is a connection with the UK e.g.  where the payment is in respect of a loan which has been used in the UK or is in respect of a service which has been provided in the UK. The use of a foreign credit card in the UK can lead to a remittance of overseas income and gains.  There are exemptions for personal effects, assets costing less than £1,000, assets brought to the UK for no more than 275 days in total or assets brought to the UK for repair or restoration.

My overseas income and gains are under £2,000, do I pay UK tax?

You can claim the remittance basis (pay UK tax only on the overseas income and gains that you remit to the UK) without making a claim, you do not need to pay the remittance base charge and you are entitled to the UK personal allowance and annual capital gains tax allowances.

I am tax resident in another country, if I can’t leave the UK due to exceptional circumstances, am I treated as UK resident for tax purposes?

There are exceptional circumstances, where additional time is spent in the UK, when days can be ignored if they are beyond an individual’s control and they are prevented from leaving the UK.  An additional 60 days in each tax year are allowed where you spend time in the UK for reasons beyond your control.  HM Revenue and Customs looks at each case individually taking into the account the facts, circumstances and evidence  surrounding the reason why an individual can’t leave the UK.  Due to the COVID-19 pandemic, some individuals have not be able to leave the UK due to travel restrictions, quarantine, border closures and flight cancellations.  These should be treated as exceptional circumstances.  However, if you had the opportunity to leave the UK but did not, this will be treated as time spent in the UK.

What next?

Tax residency is a complex area of taxation, advice should always be taken, if you have any questions, please contact the private client tax team.