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Tax resident or non-resident? Determining your tax status in the UK

PUBLISHED: 12 November 2019
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Relocation often comes at a huge cost, with a lot of unforeseen expenses usually caused by misconceptions of how everything works in another country. Our aim here is to try and help you avoid at least one of these expenses. To do this, we need to start with determining your tax resident status in the United Kingdom.

Who is a UK resident?

Once you speak to your immigration advisers, choose a type of visa you want to apply for and set a provisional moving date, it is time to think about your assets that also need to be prepared before the move. First step is to identify the date when you become tax resident in the England with all relevant implications. Tax year here starts on 6 April and runs till 5 April the following year. If you have come to the UK to stay for long, you can start your tax year from the date of arrival to the country.

It is a common mistake that only a British national can be a tax resident here along with migrants who have lived here for more than 183 days in a tax year. Another mistake is to mix up immigration and tax statuses; they are linked but do not equal each other. Immigration status is basically the type of your visa, while tax status is a more complex thing.

UK tax resident tests

In 2013, the HM Revenue and Customs introduced a special Statutory Residence Test to help you determine your tax status in the UK; it consists of several parts. Here is a simple representation of the SRT test.

Tax residence test in UK

 

A “year” here means a tax year from 6 April till next 5 April. A “day” means 24 hours starting and ending at midnight.

First you calculate how many days you have lived in the UK. If you have spent here over 183 days, you are tax resident. You don’t need to continue the test.

Automatic non-resident

If you have spent less than 183 days in the UK, answer the following three questions that are part of the Automatic overseas test.

  1. In the current tax year, you have spent less than 16 days in the UK, and you have been tax resident here for at least 1 year of the preceding three years?
  2. In the current tax year, you have spent less than 46 days in the UK, and you have not been tax resident here any of the preceding three years?
  3. In the current tax year, you have worked outside the UK and have spent under 91 days here?

At least one answer “Yes” to the above means you are not UK tax resident.

Automatic resident

If you cannot answer “Yes” to any of the above questions, answer to the following two questions:

  1. Your only home is in England?
  2. Do you have a full-time job in the UK?

If all answers are “No” again, then the last part of the SRT test will determine your tax status.

Sufficient ties test

There are 5 ties to be taken into account:

  1. Family in the UK. Your spouse or minor children live here.
  2. Accommodation in the UK. You own or rent a property that was available to you for at least 91 days in the current tax year, and you have spent there at least one night.
  3. Work in the UK. You have worked here for at least 40 days with a minimum of 3 hours per day.
  4. 90 days in the UK. You have spent more than 90 days in the UK in one of the two previous tax years.
  5. Country tie. You have been tax resident in the UK for at least one of the three previous years. Number of nights spent here is bigger than in any other countries.

You get one point for each “Yes”. Total number of ties and days spent in the UK will determine your tax status.

If you have ever been UK tax resident and scored 4 points, you are tax resident again after spending at least 16 days. If you have never been tax resident and scored first 4 points, excluding the country tie, it is enough for you to live in the UK for 46 days to become tax resident here.

File a Self-assessment tax return in UK.

Why is it important to determine your tax resident status in time?

Both residents and non-residents must pay taxes on all income earned in the UK. However, there are two basic rules for UK tax residents:

  1. Declare all income received both in the UK and abroad.
  2. Tax residents must declare their income for the whole tax year.

That is why it is vital to determine when exactly you become tax resident in the UK. According to British laws all your monetary assets received before you become tax resident are considered your clean capital and are not taxed. However, this rule does not apply to other tangible assets that belong to a future tax resident. That is why it is advisable to turn them into cash in order to avoid paying capital gains tax once you become tax resident in the UK.

Tax allowances and exemptions

Resident rules mentioned above have exceptions:

  • If you move to the UK during a tax year, in some cases you can become tax resident from the date of first entry or when you found where to live.
  • Tax residents that were not born in the UK (so called non-domiciles) can use a special remittance basis of taxation which can be very beneficial.

Remittance

You can claim remittance if you want to pay UK taxes only on the income received in the UK and income earned abroad but remitted to England. Income that stays outside the UK is not taxed here. There are limitations as to for how many years you can claim remittance – this and many other details can be better advised by a specialist.

The UK government has succeeded to sign a lot of double taxation treaties with their foreign counterparts. These will protect you from paying both UK and foreign taxes on the same foreign income. The rule of thumb is, your income will be subject to taxes in the country where you receive it.

Tailored relocation advice

As you can see, taxation rules in the UK are not as easy as they are painted sometimes in the internet. If you need help at the initial stage of tax planning or in certain measures to reduce tax burden, we strongly advise contacting specialists that would offer you an overall solution by assessing your circumstances from different points of view.

Our company stands out among other similar firms thanks to our complex approach. We see relocation as a collection of different matters that need to be addressed in conjunction and simultaneously to achieve the best result. Many companies would offer specific solutions in either tax optimisation, wealth planning or immigration.

Immigration lawyers of Imperial & Legal will do their best to make your relocation to the UK as smooth and stress-free as possible, without unwanted expenses.

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