As a UK tax advisor, I speak with a lot of individuals who have left the UK. They made the leap, might have bought property abroad, may have a right to live in another country and might even be tax resident there. But does this mean they are a non-UK resident?
It’s a common misconception that just because you own property abroad or are a tax resident that you are automatically entitled to a non-UK resident status, but unfortunately this is incorrect.
Determining residence
When I speak to clients about UK residence, the first thing we will discuss is our domestic law position. That’s the UK legislation, namely the Statutory Residence Test (SRT) and to some degree case law where concepts have been challenged since its introduction in 2013.
This first crucial step decides how the UK sees the individual in terms of residence for a complete tax year. With three layers to the SRT and a requirement to work through it in order, the test gives each individual a clear outcome as to whether they are UK resident or not for each tax year in question. The test factors in a person’s work, homes, family and time spent in the UK, but never their intention, never where they consider themselves to be resident nor whether that individual is resident in another country.
When advice isn’t sought before leaving the UK, or perhaps becoming non-UK resident was just not possible, the individual may find themselves a ‘dual resident’. This means resident in more than one country at the same time – a concept that is entirely possible, even if unexpected.
This would be the case where an individual was UK resident under the SRT and resident under another countries domestic law position. Quite often UK tax years don’t align to other countries, meaning it might only be part of the tax year affected, which can cause further complexity.
What to do if you are dual resident
Finding yourself dual resident can be confusing and often unexpected. It could mean that without further exploration each country will have taxation rights over your income and gains, possibly on a worldwide basis. The first thing will be to consider whether the UK has a Double Taxation Treaties with the other country. The UK shares treaties with over 100 countries and even with countries that would be considered as tax havens, such as the UAE.
The aim of a Double Taxation Treaty is to avoid or alleviate double taxation. As tax advisors we might consult a treaty for a variety of reasons, the most common to understand which country has taxation rights on income and/or gains. In the case of dual residence, a series of tie breaker tests will determine whereby the individual is resident for the purpose of reviewing the remainder of the treaty, the individuals ‘treaty residence’.
Unfortunately, areas of these tie breaker tests are not always clear and can be ambiguous. Ultimately, the outcome will be important in understanding your taxes and how you will be taxed in each country.
Work with a professional
Whilst navigating what is a complex area, always seek advice from a business that understands these complexities and bear in mind that this may not be quick to resolve. When determining your residence, the advice timeline is likely to look like this:
- Find out your UK residence position for each tax year in question – remember this can differ between tax years.
- Seek advice in the other country – they will have set their own set of rules as to your residence position there and how they wish to tax your income and/or gains.
- Consult the Double Taxation Treaty – this might be to ascertain treaty residence but will also be used to determine taxation rights between the counties.
- Apply the theory to the compliance – in the UK, any claims to be treaty resident in another country, restrict the UK’s taxation rights or claim a tax credit for taxes paid elsewhere is likely to take place in a self-assessment tax return.
If you are looking for further guidance on residence and taxation when living abroad, please get in touch with our friendly team – we are happy to help.
This article is distributed for educational purposes only and should not be considered financial advice.
The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.
Tax treatment depends upon individual circumstances and is based on current UK tax legislation, that is subject to change at any time.
The Financial Conduct Authority does not regulate will writing and some forms of estate planning.
The information provided within this guide is of a generic nature, which is not specific to your personal circumstances and should not be taken as advice or recommendation. Individuals must not rely on this information to make any financial or investment decision. Before making any decision, we recommend you consult your financial planner to consider your particular investment objectives, financial situation, and individual needs. Any tax treatment is dependent on the individual circumstances of each client and may be subject to change in future.
