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Tax residency in UK

The UK economy is stable, its legal system is predictable, it offers high standards of education and a lot of social benefits to its nationals. That is why many foreigners choose to come and settle there.

Besides, Great Britain offers tax benefits and incentives for its tax residents which is good for business owners or property buyers. When it comes to tax residency, many people do not even know when and how they become tax residents, how to optimise taxes and benefit from the system.

UK tax resident explained

In any country, including the UK, taxation of individuals starts with establishing their tax status, and every country has its own regulations and criteria for that.

Up until 2013, it had been hard to establish your tax status in the UK. A resident and a tax resident had been different notions. Currently, this difference is not that big. New rules were introduced to make it easier for everyone with a tax status determined through a Statutory Residence Test.

Statutory Residence Test

The Statutory Residence Test (SRT) was introduced by the HM Revenue & Customs in 2013. It consists of 3 major parts:

  • Automatic overseas tests or automatic non-resident tests.
  • Automatic UK tests or automatic resident tests.
  • If you cannot answer “Yes” to the questions of the tests above you must consider the Sufficient ties test.

We will have a look at the SRT in more details below.

Automatic overseas tests

You will be considered a non-resident in the UK if you answer “Yes” to any of the below 3 questions:

Have you been resident in the UK for 1 or more of the 3 tax years preceding the tax year in question, and you spend fewer than 16 days in the UK in the tax year?

  1. Have you been resident in the UK for none of the 3 tax years preceding the tax year, and you spend fewer than 46 days in the UK in the tax year?
  2. Did you work full-time overseas over the tax year, without any significant breaks during the tax year from overseas work, and you spend fewer than 91 days in the UK in the tax year?

If you cannot answer “Yes” to any of the question of the Automatic overseas test, look at the Automatic UK tests or automatic resident tests.

Automatic UK tests

You are automatically Resident in the UK if you answer “Yes” to any of the below questions:

  1. Did you spend more than 183 days in the UK in the tax year?
  2. Do you or did you have a home in the UK during all or part of the tax year, and no overseas home?
  3. Did you work full-time in the UK for any period of 365 days, with no significant break from the UK work?

If you do not meet any of the automatic overseas tests or any of the automatic UK tests, you should use the sufficient ties test to determine your UK residence status for a tax year.

Sufficient ties test

You will need to consider your connections to the UK, called ties, and determine whether your ties, taken together with the number of days you spend in the UK, are sufficient for you to be considered UK resident for tax purposes for a particular tax year.

There are 5 ties that you need to consider:

  1. A family tie – UK resident family member (spouse, civil partner, cohabitee or children below 18 years of age).
  2. An accommodation tie – any accommodation available in the UK for 91 or more consecutive days in the tax year with a minimum of one night spent there.
  3. A work tie – worked for 40 days or more in the tax year in the UK with a minimum of 3 hours per day.
  4. A 90 days tie – was in the UK for more than 90 days in one of the previous two tax years.
  5. A country tie – spent in the UK more nights than in any other country in the world (applicable to Leaver only).

Test results, taxes and exemptions

If based on the test results you are classed as tax resident, two main rules apply to you like to any other UK resident:

  • You are tax resident for the whole tax year from 6 April till 5 April and you must declare all your income received during that period;
  • You must declare and pay taxes on all your worldwide income irrespective of the country and source of its origin.

However, there might be exceptions to these two rules based on personal circumstances. For example, when moving to the UK to settle you will most probably become its tax resident from the arrival date instead of the tax year start date.

Besides, all non-domiciles, i.e. those who were not born in the UK, can choose to be taxed on the remittance basis. They will only be taxed on income earned in or brought to the UK.

Additional information

In the UK, your immigration status and tax residence are not directly related and must be considered separately. Your immigration status is your rights to enter, live and work in the country depending on your visa or nationality. Your tax residence position must be considered when arriving to the UK on any type of visa.

It was already mentioned above that a Statutory Residence Test (SRT) was introduced by HMRC in 2013. Completion of this test will result in understanding your tax resident position in the UK. Each tax year should be looked at separately, therefore the tests must be applied for each year individually.

If you are a tax resident in the UK, the starting position is that you are tax resident for the whole tax year during which you arrive. Once you have established that, you need to look into further tests to understand whether you are a resident for the whole tax year during which you have arrived or whether you may be eligible to have the year split into two parts where you are resident only from the day you arrive.

Furthermore, if you are a tax resident in the UK you are liable to tax on all your worldwide income unless you are non-domicile. In this case you use special tax regime called Remittance basis.

When you worked out that you are a tax resident in the UK in a year under a question you should consider the level of your income worldwide and if this level is above £2,500 per year and it is not an employment in the UK you are obliged to prepare and submit your Self-Assessment Tax Return (SA TR).

Tax year in the UK starts on 6 April and finishes on 5 April. So, you have time until 31 January the next year after the questioned to prepare and submit your SA TR.

Please pay attention, that even if you were or were not considered a non-UK resident before the SRT was introduced in 2013, your status may have changed since its introduction.

Establishing your tax status with Imperial & Legal

As you might have understood already, there are many things you need to be aware of when establishing your tax residence status in England. Proper tax planning needs to include all aspects of your moving to the UK to avoid any surprises and big amounts of taxes.

Our tax advisers at Imperial & Legal offer a whole range of services, customised solutions for everyone and individual approach. They are highly qualified to support you on every stage of cooperation and consult on immigration and taxation liabilities.

To discuss your requirements, please contact our specialists or call us on +44 (0)203 490 41 21.

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