The UK rules as to when you are tax resident in the UK or not if you live abroad but spend time in, or have strong ties with, the UK are notoriously complex and have caught people out
The UK rules as to when you are tax resident in the UK or not if you live abroad but spend time in, or have strong ties with, the UK are notoriously complex and have caught people out. There is currently no statutory definition of UK tax residence and though HM Revenue & Customs does a booklet on the subject (HMRC6, with the previous version called IR20), it is only guidance and not law.
The situation will improve next year as on 17th June the Treasury issued a consultation paper outlining its proposals to redefine UK residence with effect from 6th April 2012.
Under the proposals there are different rules for ?Leavers?, ?Arrivers? and those ?working full time abroad?.
A while back I wrote an article about the UK residence rules for people working outside the UK and how HMRC had discussed introducing a 10-day de minimis level on the number of days someone could work in the UK before the authorities could challenge their non-residency position.
These new proposals set completely different rules, and the 10 day rule has been dropped.
A day working in the UK
The paper introduces a new concept of ?a day working in the UK?, which is any day where you spend three or more hours carrying out some form of work in the UK. While normally a day in the UK is one where you are physically present at midnight, days working in the UK are counted even if you leave before midnight. So, for example, if you fly into London in the morning, spend four hours at a board meeting or with clients and fly out again the same evening, this is counted towards your total working day tally, though it does not count towards the count of days in the UK (which only includes midnights spent in the UK).
If you work for less than three hours on a particular day, you will be expected to have ?sufficient records to demonstrate this fact?.
This definition looks simply at hours worked so it appears that weekends and bank holidays can count as working days.
Full time work abroad
Under the proposals you cannot be classed as UK tax resident if you meet all the following conditions:
1. You work full time abroad
2. You do not spend more than 20 days a UK tax year working in the UK
3. You spend less than 90 days a UK tax year in the UK
4. Your employment abroad covers at least one complete UK tax year
5. You left the UK with the intention to perform such work
?Full time work? is defined as working under one or more contracts of employment with a combined 35 hours per week. Alternatively you can carry on one or more trade or professions wholly abroad for more than 35 hours per week on average.
Note that you must also be abroad for at least one complete UK tax year before you are classed as full-time working abroad.
Even if you do not meet the above rules, it is still possible to be classed as a UK non resident under other headings but you should seek separate advice as the matter is complex.
Split years
The proposals do include five circumstances when the tax year can be split into periods of residence and non-residence, and this includes situations where someone loses their UK residence by virtue of working full time abroad or where someone returns to the UK following a period of fulltime work abroad.
In this case the number of days you can spend working in the UK during your period of non-residence will be reduced pro-rata.
Working more than 20 days in the UK as a Leaver
If you spend more than 20 days a year working in the UK, you may or may not be UK tax resident. You will instead need to follow the rules applied to Leavers.
Using the Leaver rules, you would definitely be UK resident if you spend more than 10 days a year in the UK and your ?only home? is in the UK, or if you spend over 183 days a year there.
Leavers who spend less than 10 days a year in the UK can never be UK tax resident under any circumstances.
Otherwise to determine your tax residence you need to look at the number of days you spend in the UK and how many set ?Connecting Factors? apply to you. It is beyond the scope of this article to explain all the connecting factors, in any case it is always important to seek advice for your specific situation.
The above rules are all still proposals, so it is possible that they will change before coming into law. For the moment you need to follow the existing guidance. Should the proposals be approved they will be of help to British expatriates, but the rules are very detailed so you will need to make sure you apply them correctly.
These UK residence rules do not override the UK?s double tax treaties with countries like Spain, France, Portugal, Cyprus and Malta, so if you are also resident there the terms of the treaty need to be reviewed to establish where you are resident ? there are many cases where a Briton can be found to be UK resident rather than Spanish/French/Portuguese/Cyprus/Malta tax resident. Expert advice from an advisory firm like Blevins Franks, which is fully cognizant of the tax and residence rules of the UK and countries like Spain, France, Portugal, Cyprus and Malta will ensure that you have got your tax residency right.
Overall we welcome these new rules as they provide much greater certainty than the existing position and narrows down the relevant factors in assessing UK residency.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of 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
26th July 2011
