How do I break residence with the UK for tax purposes?
The UK is currently experiencing significant political turmoil and uncertainty. In view of this uncertain situation it is not unusual for currently UK based individuals to consider their options regarding their continued stay in the UK. This has been recognised by several other European countries who are now tempting individuals away with very preferential tax regimes where you may be resident in that country but where income arising outside that country is not subject to tax in that country (Italy, Portugal). However, London will undoubtedly remain an important financial centre and it may not be practical to leave the UK and not continue to spend time working in the UK (London).
This note intends to provide guidance on how it is possible to be achieve non-UK residence while continuing to spend time working in the UK. We would stress that this note is for guidance only and that you should take professional advice should you wish to consider these matters in more detail.
Since 2013 your UK residence position (for tax purposes) is determined in accordance with the Statutory Residence Test (SRT). We are considering the circumstance where you are currently a UK resident and are considering taking steps to become non-UK resident.
The SRT provides us with automatic tests that determine you as either UK or non- UK resident. These are fairly clear-cut and include the following
- you will be UK resident in a tax year if you spend 183 days in the UK in that year.
- You are non-UK resident if you are present outside the UK in “full time” employment abroad and spend less than 91 days in the UK during the year.
- You will be non-UK resident if you spend less than 16 days in the UK during the year. This is very simplistic.
We would add that the definition of “full time” employment overseas is rigorous (at least 7 hours a day, 5 days a week, etc, etc) and only allows you up to 30 days of work in the UK per year (a UK workday is one where you spend 3 hours or more working in the UK).
|The Deeming Rule|
Please note, a UK day is generally one where you are present in the UK at midnight. However, there is a deeming rule that will apply where you have been UK resident in at least one of the previous three years and have at least 3 ties to the UK (see later). In this case, if you have more than 30 UK days in the UK where you leave the UK before midnight, any of these days in excess of this 30-day limit will be considered to be UK days for the purpose of this test.
If you do not meet any of the automatic UK residence and non-UK residence tests you must look to the “significant ties” tests in the SRT. The sufficient ties test considers how many UK ties you have and then tells you how much time you must spend in the UK to be considered a UK resident. The more UK ties the less time you need spend in the UK to be a UK resident.
The ties to be considered are as follows
1) Family – spouse/partner is resident in the UK
2) Accommodation – available place to live for a continuous period of at least 91 days.
3) Work – spend more than 40 days working in the UK.
4) UK presence – spent more than 90 days in the UK in either of the previous two tax years.
5) Country tie – is the UK the country you are present in the greatest number of days at midnight. considered if you are UK resident in any of the 3 previous tax years
Then we consider the following table
|UK resident in at least one of the three preceding tax years|
|Number of days of UK presence required in the tax year||UK ties required for UK residence|
|Less than 16||Automatically non- UK- resident|
|16-45||At least 4|
|45-90||At least 3|
|90-120||At least 2|
|120-182||At least 1|
|183 or more||Automatically UK resident|
So, all very well and good! What if I am living in London with my family and want to move to Italy but still need to return and work in London on a regular basis (for more than 31 days a year). If your family move with you and you do not retain available accommodation in the UK ensuring that you spend most nights in Italy, you will have at least one UK tie (UK presence). If you spend less than 40 days working in the UK, the deeming rule would not apply, you can spend up 120 days in the UK and be a non-UK resident. However, if you spend more than 40 days working in the UK you will have a UK work tie; 2 UK ties will require you spend less than 90 days in the UK in order to maintain non-UK residence, but the deeming rule would not apply. This would allow a weekly trip to the UK staying one nights each trip. This give you 52 UK days, being well under the 90 days with scope for more UK travel.
In the same case as above but you retain a flat for your use in the UK. This reduces the scope for UK presence to 44 days and the deeming rule applies. The deeming rule would apply to those trips where you arrive into the UK and leave before midnight on the same day together with the day of departure from the UK where you had an overnight stay in the UK. In the case where you have 40 UK overnight trips this causes a problem as 10 of the 40 departure days will be deemed UK giving 50 in total and making you UK resident.
From the above it seems clear that where you do leave the UK but expect regular UK visits that you make sure that you have at most 2 UK ties so that you do not fall into the deeming rule, this will allow the daily UK trip where you leave before midnight not being considered a UK day.
After you have achieved three continuous years of non-UK residence the rules loosen up allowing more time to be spent in the UK. We have not considered the impact of Double Taxation Agreements in this note.
This is a very basic analysis of these rules, we have merely attempted to show their limitations in this circumstance. You should take professional advice if you are considering this option seriously. We (at PJD Tax Consultant) can assist you in this respect if required.