We have come across many cases where someone thinks they are tax resident in France, only to find they are actually resident in the UK, or vice versa. This issue of residence is vital, since it determines the country to which you pay most of your taxes…
We have come across many cases where someone thinks they are tax resident in France, only to find they are actually resident in the UK, or vice versa. This issue of residence is vital, since it determines the country to which you pay most of your taxes. Importantly, you need to ascertain your tax residence before you can put into place the most effective tax planning for your circumstances.
Both the UK and France have their own rules to determine tax residency. It is possible to be resident in both countries under their domestic rules, in which case the France/UK double tax treaty will determine what tax is due to which tax authority. You cannot choose where to pay taxes; you must to follow the rules.
The situation has been made even more complex by the fact that, until now, the UK has only had case law on residency rather than statutory law. This has caused much uncertainty for British expatriates in France and elsewhere, especially if they retain property or other ties with the UK or spend time there. UK legal challenges in recent years have caught out individuals who believed they were resident outside of the UK but who, on closer investigation, were found to be UK resident.
This uncertainty has brought about a new Statutory Residence Test which came into effect in the UK on 6th April this year. It provides more certainty for British expatriates, though this does not mean that it is simple.
I will summarise the French rules first and then move on to look at the new UK residence test.
French residence rules
You are deemed to be tax resident in France if at least one of the four following tests is fulfilled.
- France is your main residence or home (your foyer fiscal). The foyer is usually defined as the place where the family (spouse and minor children) habitually live, in other words, where your family interests are based.
- France is your principal place of abode, your lieu séjour principal. This usually (but not always) means you spend more than 183 days in France per calendar year.
- Your principal activity is in France (e.g. occupation) is in France.
- France is the country of your most substantial assets (centre of economic interests).
UK residence rules
From now on, to assess your UK residence status, you need to work through the following three tests in the order shown below. The first test is absolute, and trumps all other tests, so if you are non-UK resident under this test, the other two will not apply. If the second applies, the third is ignored.
Note that all references to “years” are a UK tax year (6th April to 5th April), and a day in the UK is counted if you are there at midnight.
(1) Automatic overseas test
If you meet any of the following conditions, you will automatically be treated as not resident in the UK:
- You were not resident in the UK in any of the previous three UK tax years, and are present in the UK for fewer than 46 days in the current year.
- You were resident in one or more of the previous three years, and present for fewer than 16 days in the current year.
- You work overseas full time and spend no more than 30 days working in the UK (work day = three or more hours), and spend no more than 90 days in the UK in the relevant year.
(2) Automatic residence test
You will be automatically treated as resident in the UK if you meet any of the following conditions:
- You spend at least 183 days in the UK in the current tax year.
- Your only or main home is in the UK.
- You work full time in the UK for at least 365 days without a significant break from work of 31 days or more, subject to certain conditions.
- An “only or main home” is property available to be used by you for at least 91 days, if you have actually used it for 30 separate days or more.
(3) Sufficient ties test
If your residence position is not determined by the above two tests, the number of days you can spend in the UK in the relevant tax year without being UK resident depends on if you are an arriver or leaver, and the number of connecting ties you have with the UK. These are:
- Family – spouse and/or minor children live in the UK
- Accessible accommodation – if available to you for at least 91 days and you spend just one night there
- Work – if you spend 40 or more days working in the UK
- 90 days – if you spent 90 days or more in the UK in either of the two previous tax years
- Country – if you spend more days in the UK than any other single country (only applies to ‘leavers’).
This test operates on a sliding scale, so the more ties you have with the UK, the less time you can spend onshore without becoming UK resident.
This is necessarily a brief summary of the rules – HM Revenue & Customs’ guidance notes run to 55 pages! If you meet both the UK and France residency rules, then you need to look at the “tie-breaker” rules in the double tax treaty to determine your tax residency. All in all, this is a more complicated matter than it looks on the surface, so for certainty on your tax position you should seek professional advice, to cover the rules of both countries and how they interact.
This is all very complex so If you would like calculate, with certainty, whether the new rules may deem you to be a resident of the UK or not, please call your local Blevins Franks office and they will supply you with an easy to follow personal flow chart to help you decide if you are affected by this change or not.
26 April 2013
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 should take personalised advice.