Expatriates are used to counting days to establish their tax residency. Many countries including the UK have the ‘183 days a year rule’, while the UK also has the ‘90 days a year over four years’ rule. It is not always as simple as day counting, however, and many countries also stipulate other situations which would make you liable for tax in that country.
Next year the UK intends to introduce a statutory definition of tax residence. The consultation document says that the government considered but rejected a test based solely on the number of days spent in the UK because “it believes that where someone is resident is more than just a question of where they spend their time”.
Its proposed tests therefore seek to prevent someone becoming non-resident simply by reducing the number of days to below a set level and impose a requirement to reduce their other connections with the UK. The rules are far clearer and will provide more certainty BUT they are still complex and confusing to the non-tax specialist. So while they are no longer subjective and vague, the new rules remain complex.
- The number of nights which you can spend in the UK refers to the number in a UK tax year ending midnight 5th April.
There are separate rules for Leavers, Arrivers and those working full time abroad, so it will be important to follow the rules for your situation.
There are five newly defined connecting factors which are: family in UK (spouses/civil partners and children under 18); UK accommodation; substantive employment in the UK; UK presence in previous years and more time in the UK than another single country.
Under the Leaver rules, British expatriates who spend less than 10 nights a year in the UK will never be considered UK resident even if they have connecting factors. At the other end of the scale, anyone who spends over 182 nights a year in the UK, or whose only home is in the UK, will always be classed as UK tax resident regardless of how few other connecting factors he/she has (subject only to be overridden by any appropriate double tax treaty).
Otherwise whether or not you are UK tax resident will depend on the number of nights you spend there and the number of connecting factors you have.
Here are some examples under the new rules (the number of days is per UK tax year):
- David and Sarah have sold their London home, are no longer working and will move to Andalucia in Spain where they will live permanently other than visits to the UK. Their adult children remain in the UK. They have one connecting factor (over 90 days in UK in previous two years). They can spend up to 119 nights in the UK provided they are in hotels, not staying regularly elsewhere, without being UK tax resident. This would commence from 6th April after they have left the UK.
- John and Anne have been living permanently in their property in Bergerac, France for 10 years and shook off UK tax residency. They are both retired. They kept a flat in Manchester because Anne likes to visit her adult children and grandchildren regularly spending over 90 days there each year. They have two connecting factors (UK accommodation and over 90 days) but unlike David and Sarah are classed as Arrivers, not Leavers. They can spend up to 119 nights in the UK without being classed as UK tax resident (had they been ‘Leavers’ it would have been limited to 89 nights).
There is a special rule for people who go to work full time overseas, leaving behind their families in the UK. They will be deemed to be non-resident as long as they spend less than 89 nights in the UK and work in the UK for less than 20 days (defined as less than three hours work in a day: a difficult one to prove/disprove).
- Andrew has been living and working in the Algarve for 15 years where he owns a property. During this time he did not keep any property in the UK and only visited briefly. He will now start to carry out consultancy work in the UK for one week each month and has signed a long-term lease on a flat so he has somewhere to stay. He falls under the Arriver rules and can spend up to 119 days before being liable to UK tax on his worldwide income. He might be liable to UK income tax on the consultancy work undertaken in the UK.
- George is a retired divorcee who owns property available for his use around the world, including London. He spends time in all these countries as well as sailing around the Caribbean. However, he spends more time in England than any other single country and has young children who live with their mother in the UK. He has three connecting factors (UK accommodation; family in UK; more time in UK than any other country) and as a Leaver will be UK tax resident if he spends more than 44 nights there.
The above examples are simplified and you will need to understand exactly how each of the connecting factors work and the number of days you can then spend in the UK to establish your specific situation.
Remember that you will also need to take your local residency rules into account. It is important to seek advice on your personal situation from a firm experienced with international tax residency issues such as Blevins Franks.
Contact details: Article written by Blevins Franks.