Tax Factor
01 June 2011
Resident or non-Resident? – That is the question
Whether or not an individual is taxed in the UK on certain income or gains is dependent on that individual's resident status; in other words, are they resident for tax purposes in the UK or not? The old rules used to determine residency were fairly objective, but from 6 April 2011 a new set of criteria have been adopted by HMRC which give taxpayers much less certainty!
For many years, the question of whether or not an individual was resident in the UK for tax purposes could be determined using a relatively simple test. In principle, provided that the individual in question spent less than 183 days in the UK per tax year, and less than an average of 91 days in the UK per year over a 4 year period; they were almost certainly deemed non-UK resident. The rules were generally well understood and a fair degree of certainty was available when considering a person's tax status. However, in December 2010 HMRC not so much moved these goalposts as knocked them down altogether as a result of Court judgements issued in a case known as the Robert Gaines-Cooper case.
The new rules came into play from 6 April 2011, and the changes relate mainly to individuals who are in the UK for less than 183 days a year and want to claim non UK residence. (Individuals in the UK for more than 183 days in a tax year are treated as UK resident anyway.)
Under the new guidance, a person must be assessed not only on the number of days they are in this country, but also on their 'ties' to the UK, including family, social, business and property connections. The old 91 day average test has been removed entirely for individuals leaving the UK except in connection with overseas employment. The key now is to consider the specific circumstances surrounding each individual.
HMRC have issued the following examples in connection with the factors to be considered:
- 'Family ties' include a spouse, civil partner, children or other family members you are close to, in the UK.
- 'Social ties' include membership of clubs and societies or events that you regularly attend or host; and any regular recreational engagement, such as returning each year for an annual sporting season.
- 'Business ties' include owning or being a director of a business based in the UK, or having employment, including self-employment, in the UK.
- 'Property ties' include a house or apartment that you own or lease, or property held primarily for investment but that also provides you with accommodation when you are in the UK.
The subjectivity of these new rules means that the residency tests have somewhat lost their clarity, and could result in far more people being considered UK resident, and potentially subject to UK taxation on their worldwide income and gains. The revised rules have also brought into focus the need for a taxpayer to show a 'distinct break' from the UK when leaving the country and becoming non Resident.
If you are concerned that your existing or intended status could now be challenged as a result of this new guidance it will be important for you to seek advice, and Wilkins Kennedy would be happy to consider your individual circumstances and advise accordingly.
