This is a short guide to provide a general response to frequently asked questions concerning UK tax residency and its impact on how you will be taxed in the UK.
How do I know if I am a resident in the UK for tax purposes?
Since 6th April 2013, UK tax residency has been determined by a Statutory Residence Test (SRT) which looks at the time an individual spends in the UK and what ties they have to the UK. The SRT comprises three parts:
- An automatic non-resident test
- An automatic resident test
- A sufficient ties test
What’s the basis of taxation in the UK ?
Individuals who are UK tax residents are subject to UK tax on their worldwide income and gains on an arising basis, unless they are able to claim the Remittance Basis. UK sourced income and gains will always be taxed in the UK as they arise.
Can I claim the remittance basis of taxation?
If you are a UK tax resident but not UK domiciled you may be eligible to claim the Remittance Basis.
The Remittance Basis allows you to pay UK tax only on your UK income and gains and your overseas income and gains that have been remitted to the UK. There is an annual charge for the privilege of doing that in some cases.
What is a remittance?
A remittance is when you bring overseas income and gains into the UK. This is a complex area, and the term remittance is drawn very widely and can include money brought into the UK by other people who are related to you, as well as by yourself.
For example, transferring money into a UK bank account will be a remittance. In addition, where an overseas debt is serviced from overseas funds, this will be treated as a remittance if the monies provided by the loan have been used in the UK. The use of a foreign credit card in the UK can lead to a remittance of overseas income and gains if this is paid using overseas monies. Bringing high value goods into the UK may also be included but there are exemptions for personal effects costing less than £1,000 and assets brought to the UK for no more than 275 days in total or assets brought to the UK for repair or restoration.
I want to claim the remittance basis – what will it cost me?
You can claim the Remittance Basis of taxation free of charge initially, but you will lose any entitlement to a tax-free personal allowance (worth c. £4,000 in income tax savings) or tax-free annual exemption (worth up to £3,360 but falling since April 2023). However, if you have been a resident in the UK for 7 or more of the 9 preceding tax years, in addition to the loss of the tax free allowances, an annual charge is also payable to use the Remittance Basis. This charge is not treated as a tax and double tax relief cannot be claimed in relation to it.
It starts at £30,000 per annum and increases to £60,000 per annum if you have been UK tax resident for 12 or more of the 14 preceding tax years. Once you have been a UK tax resident for more than 15 years in a 20-year rolling period, you cannot use the Remittance Basis.
My overseas income and gains are small, do I pay UK tax?
If your unremitted overseas income is less than £2,000 in a tax year, you can claim the Remittance Basis without making a claim, and without paying the Remittance Basis charge. You can also still claim the UK personal allowance and annual capital gains tax allowances.
I have already paid tax on my income overseas
If you are subject to UK income tax on income which has already been taxed overseas, then relief will be given for that tax in accordance with the relevant double tax treaty. This applies whether you claim the Remittance Basis, or if you are taxed on your Worldwide income in the UK. As a result of that, if you are already paying significant rates of tax overseas, it may not be economical to claim the Remittance Basis (certainly after the charge becomes payable), unless you wish to do so for reasons of privacy.
I am tax resident in another country, if I can’t leave the UK due to exceptional circumstances, am I treated as UK resident for tax purposes?
There are occasions where HMRC will allow you to spend more time in the UK than the SRT would usually permit and for you to still be treated as not a UK tax resident in the year. This usually happens when there are “exceptional” circumstances that keep you in the UK and may include health reasons or a national emergency which forces the closure of boarders – for example, the Pandemic in 2020 – which are beyond your control.
HMRC will usually accept you spending up to an additional 60–days in the tax year here when that happens. However, they look at each case individually taking into the account the facts, circumstances and evidence surrounding the reason why you were unable to leave the UK as planned. If you have the opportunity to leave the UK and do not, or the period of time you overstay is more than 60 days, HMRC will usually make no allowances for the time spent here. Many people were caught by this during the pandemic when they stayed beyond the point where they would have been permitted to leave.
Can I be a tax resident in more than one country?
Yes, it is possible for you to be a resident in more than one country at a time.
This is because every country operates with different rules regarding residency. Sometimes this will relate to how long you have spent in a country, but there may be other factors to consider, as there is with the UK. In these circumstances you will need to check if the countries in question have a double tax treaty in place. This will usually determine which country is able to claim you as “treaty resident” using a series of tie breakers, and depending on the result, how you are taxed in each country will follow accordingly.
Tax residency is a complex area of taxation and advice should always be taken whether you are coming to or leaving the UK. If you have any questions, please contact the Private Client tax team.