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The art of becoming non-resident for UK tax purposes

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John Goodchild, (pictured) Partner and Head of Private Wealth at Pemberton Greenish writes on becoming non-resident for UK tax purposes…

It is not always easy or straightforward to become non-resident for UK tax purposes and you would be well advised to seek advice from a tax lawyer or accountant as soon as you get the notion that you might want to move abroad. 

The relatively new statutory residence rules are far less opaque than the old law on tax residence but they are complex and fiddly and, so, there are pitfalls for the unwary.

Timing is important and it is preferable to formulate a plan before the UK tax year in which you intend to leave since it is not always possible to split a UK tax year into a resident period and a non-resident period.

The circumstances of your move abroad and, in particular, whether you will be working full-time abroad will determine whether or not you achieve non-UK resident status.

The first set of tests that your adviser will consider are the, so-called, “automatic overseas tests”.

Assuming that you have been UK tax resident during one of three tax years before you leave you will only achieve “non-resident” status under these tests if you spend fewer than 16 days in the UK in a tax year after your departure or you carry out “full-time work abroad” during such tax year.

The “full-time work abroad” test provides more leeway for an individual to spend time back in the UK – he or she may spend up to 90 days in the UK.  However, the individual needs to satisfy the stringent requirements of “full-time work abroad”.  If you are seeking to rely on this test you need to be careful about “significant breaks” from overseas work and also about the number of days in which work is carried out in the UK.

You also need to be careful not to trip up over the “automatic UK tests”.  These should be avoidable.  But, you need to be careful where you have a home in the UK, you spend 30 days in that home in a tax year and you do not have a sufficiently permanent home outside the UK. The complexities of this rule are beyond this article but in broad terms it may be helpful to ensure that, if possible, you let any UK property that you wish to retain throughout your desired non-resident period, that you keep your stays there to an absolute minimum and you try to establish as permanent a home as possible abroad.

If you cannot bring yourself within any of the “automatic overseas tests” you will need to qualify as non-resident under the “sufficient ties test”.
As a “leaver” there are five potential ties that are relevant.  In broad terms these are:-

  • the family tie – a UK resident spouse or child under 18;
  • the accommodation tie – accommodation which is available;
  • the work tie – work in the UK for 40 days or more for more than 3 hours per day;
  • the 90-day tie – 90 days spent in the UK during one or both the previous two tax years; and
  • the country tie – more days spent in the UK than any other single country.

 
There are, needless to say, complex rules for determining whether each of the ties is satisfied during a UK tax year.

Once your adviser had determined the number of ties that you will have with the UK he or she will look at the statutory table set out below to determine whether or not you are going to be treated as a non-UK resident in a given tax year.

For the purposes of the table a “day” means a day in which you are present in the UK at midnight but for some of the ties presence in the UK during any part of the day will count.

Days spent in UKLeaver
Less than 16Always non-UK resident
16 to 454 ties = UK resident
46 to 903 ties = UK resident
91 to 1202 ties = UK resident
121 to 1821 tie = UK resident
183 or moreAlways UK resident

 
As mentioned earlier, it is not always possible to “split” a tax year and, indeed, the starting point is that that is not possible.  Consequently, if you are intending to leave the UK part way through a tax year and you wish to achieve non-UK resident status from the point of departure you will need to fit yourself within one of the prescribed cases in which “split year” treatment is afforded.  There are particular cases that deal with going to work abroad and also individuals accompanying their partner who is going to work abroad.

If you are successful in achieving non-UK resident status but are not necessarily going to be away from the UK for a significant period of time you need to be aware of the “temporary non-residence” rules.  In broad terms, if you have been UK resident for 4 or more of the 7 tax years preceding your year of departure and you are subsequently non-UK resident for 5 years or less you are liable to UK tax on your return on:-

  • capital gains realised; and
  • certain types of income, including foreign income remitted to the UK;

 
during the period whilst you are abroad.

Tax residence is a complex area and however straightforward you may think your circumstances are you need to tread very carefully!

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