UK And Local Tax Residence Issues

The UK government published a consultation paper in June outlining its proposals to introduce a statutory definition of tax residence from 6th April 2012. It is based on the principl

The UK government published a consultation paper in June outlining its proposals to introduce a statutory definition of tax residence from 6th April 2012. It is based on the principle that where someone is resident is more than just a question of where they spend their time. While the proposed tests do not completely eliminate day counting, they also impose a requirement to reduce the number of connecting factors to the UK.

There are different rules for ?Leavers?, ?Arrivers? and ?full time workers abroad?. You need to make sure you follow the rules for your specific situation ? it is not always as straightforward as you may think.

There are five newly defined connecting factors, which are:

1) Family in UK (spouses/civil partners and children under 18)

2) UK accommodation accessible to you as a place of residence

3) Substantive employment in the UK

4) UK presence in previous years (more than 90 days in either of the previous two tax years)

5) More time in the UK than another single country (this factor only applies to leavers)

Looking at the Leaver category, if you spend less than 10 nights a year in the UK in a tax year you will never be considered UK resident. If you spend over 182 nights a year there, or if your only home is in the UK and you spend over 10 days there per year, you will always be considered UK resident.

Otherwise, whether or not you are UK tax resident depends on the number of nights you spend there in a UK tax year and how many connecting factors you have. As a Leaver, if one connecting factor applies you can spend up to 119 nights in the UK without being UK tax resident; if you have two factors it reduces to 89 nights; if three factors 44 nights and if four or more you can only spend nine nights before being deemed UK tax resident.

If approved these new rules are much clearer and will provide more certainty. Nonetheless they are still complex and confusing to the non tax specialist and while they are no longer subjective and vague like the current guidance, the rules do remain complex.

You also need to consider local rules in your country of residence. While most countries have the ?183 days a year? rule, many also consider factors such as where your ?main home? is; where your ?centre of economic interests? (principal assets or source of income) or ?centre of vital interests? (spouse/dependant children) is.

If you fulfil both the UK and local residence criteria simultaneously, then in many cases double tax treaty ?tie breaker? rules override both the UK and local domestic residence position. You need to review your local residency laws and the terms of any treaty to establish where you are tax resident – there are many cases where a British expatriate could be found to be UK resident.

Blevins Franks keeps fully up-to-date with UK and overseas tax and residency issues and the impact they have on expatriates? wealth. We have over 35 years experience with international tax planning and will guide you through the rules, changes, impact and potential solutions.

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.