Here is some really good news for retired UK expatriates who have been struggling with the UK?s average 90 days residence over 4 years rule. Under Treasury proposals, the rule could
Here is some really good news for retired UK expatriates who have been struggling with the UK?s average 90 days residence over 4 years rule. Under Treasury proposals, the rule could become much clearer and much easier. If they are approved, most retired expatriates will be able to spend up to 119 days in the UK in each UK tax year, yet remain outside of HM Revenue & Customs? clutches.
HM Treasury has acknowledged that ?there is currently no full legal definition of tax residence, meaning that the rules are unclear, complicated and seen as subjective?. In his March Budget the Chancellor announced that a statutory residence test would be introduced from 6th April 2012 and on 17th June the Treasury issued a consultation paper outlining its plans for the proposed test.
The taxman?s booklet on UK tax residence, known as HMRC 6 (which replaced IR20) will be torn up.
The proposed new test classifies individuals as:
2. ?Arrivers? (including British people who have not been UK resident for the previous three UK tax years)
3. ?Full time workers abroad? (working under contract/s of employment with a minimum of 35 hours per week)
There are to be separate rules for each category, so you need to make sure you follow the rules for your category. As there is a relatively fine line between them seeking professional advice will give you peace of mind.
This article covers ?Leavers?, so Britons who have left the UK to live abroad. The points below therefore do NOT apply to Arrivers, but only to Leavers. Arrivers are subject to a different set of rules and you will need to seek personalised advice.
Tests will apply in each category to determine if an individual can be definitively excluded from UK tax residence or definitively included.
The number of days you can spend in the UK without becoming a UK tax resident is then dependent on how many of five other factors apply to you.
A day in the UK will be any day when you are physically present at midnight.
Under the proposals, if you have left the UK you can never be UK tax resident if you spend less than 10 days in the UK in a UK tax year even though you may have a home there, or a family, or whatever.
On the other hand, if you spend more than 9 days in the UK and have your only home in the UK (and no other home outside of the UK) you will be a UK tax resident.
If you work full time in the UK (more than nine months continuously and not more than 25% of the duties performed outside of the UK) you will be classed as UK tax resident. Note that the nine months can straddle two UK tax years; it is not nine months per tax year.
Otherwise, to determine your tax residence, you need to see how many of the other ?connecting factors? apply to you. These are:
1. Family ? if you have a spouse/civil partner and/or children aged under 18 who are tax resident in the UK.
2. Accommodation ? residential property accessible to you to be used as a place of residence and used as so by yourself or your family in the year.
3. Substantive employment ? if you work in the UK for 40 or more days in a tax year.
4. UK presence in previous years ? if you have been UK resident for more than 90 days in either of the previous two UK tax years.
5. More time spent in the UK in the tax year than any other single country
The above factors are all subject to their own specific criteria.
If only one factor applies, you can spend up to 119 days in the UK without becoming UK tax resident.
If no more than two factors apply, you can spend up to 89 days.
If no more than three factors apply you can spend up to 44 days.
If four or more factors apply you can spend no more than 9 days.
If you exceed any of the days above in a UK tax year you will be UK tax resident. If you spend over 182 days a year in the UK, you will be UK tax resident even if none of the connecting factors apply.
The Treasury consultation paper explains that:
?The government has considered alternative ways to design a statutory test, including a test based purely on the amount of time spent in the UK. However, it believes that where someone is resident is more than just a question of where they spend their time. Most importantly, it believes a definition based purely on time spent in the UK would lead to outcomes that cannot be justified. For example, it would enable individuals to become non-resident simply by reducing their number of days in the UK below the relevant threshold without any requirement to reduce their other connections with the UK.?
The new rules are a major advance in providing certainty for individuals who have homes in the UK and visit there frequently, so we hope they will be implemented. They are still at the draft stage at the moment, but they have been broadly welcomed by tax practitioners and so we do not anticipate major changes. The consultation period closes on 9th September 2011.
This article about Leavers only summarises some of the key points in the rules and is not meant to be a full explanation. You need to consult a specialist advisory firm like Blevins Franks for advice specific to your own circumstances, whether you are a Leaver or an Arriver. Professional advice will give you reassurance that you have got your residency status right and will not end up with an unexpected tax bill from HMRC.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.
By David Franks, Chief Executive, Blevins Franks
5th July 2011