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Spending most of your time outside of the UK? Know your tax residency status.

Updated: Mar 29, 2023

It’s more often than we’d like that a new client comes to us after they’ve been surprised by their tax residency status. If you live mostly abroad but visit the UK regularly it’s important to be aware of your residency status before you are unexpectedly hit with a significant tax bill you didn’t expect.

Your tax residency status is based on a number of factors. If you are a UK tax resident, you will be subject to tax on your worldwide income, regardless of where it was earned. This means that you will need to declare all of your income, including any foreign income, to HM Revenue & Customs (HMRC) and pay any tax that is due.

On the other hand, if you are a non-UK tax resident, you will only be subject to UK tax on income that is sourced in the UK. For example, income from your rental properties would be subject to UK tax. Even if you work for a UK-based company, the income you earn from that employment need not be UK taxed.

Generally, if you spend less than 183 days in the UK in a tax year, you will be considered a non-UK tax resident. However, if you have significant ties to the UK or if your visits are for a specific purpose, such as work or education, you may still be considered a UK tax resident. Don’t be sure that you are a non resident if you have anything more than 16 days in the UK in one tax year.

So what are considered “significant ties”? “Significant tie” type factors that could cause you to be considered a tax resident even when you were in the country less than 183 days include:

  • Having been in the country as a resident the previous three tax years

  • Spending time (generally more than 40 days) in employment in the UK

  • Owning homes in the UK, especially if you don’t own homes abroad.

  • Your family being resident in the UK

  • Your access to accommodation in the UK

  • And even just being in the UK more than any other one country!

If you are in the UK at the end of a day, that is for tax purposes counted as a day in the UK. All these factors and more lead to some interesting cases. For example Brian (name changed) is a UK citizen who works for an oil company in Saudi Arabia.

Brian spends most of the year in Saudi Arabia but travels to the UK occasionally to visit his family and friends. Brian came to us after he found out he was a tax resident in the UK the previous year having not expected that to be the case. He spends most of his time outside of the UK but had significant ties to the UK, and he did not pass the automatic overseas residence test to be considered a non-UK tax resident. This means that Brain was for that year subject to UK tax on income that is sourced in the UK, such as rental income from his UK properties and on his income earned abroad. He actually had spent just 46 days in the UK that year, but was able to plan ahead for the following year. We were able to help him claim back on some allowances he had too.

In another scenario Sarah, (name changed) is a US citizen who had started working in London. Sarah has a rented flat in London and regularly visits her family in the US. She was keen to make sure that she followed all the rules and came to us before her first UK tax return was due. We were able to clarify that under the statutory residency tests, Sarah would be considered a UK tax resident and supported her ensuring all returns were done on time and any allowances she was eligible for were claimed. She didn’t encounter any surprises.

It's important to note that each individual case is unique, and HMRC will consider all of the relevant factors when determining residency status. If you are unsure about your residency status or have any questions about your tax obligations, we as international tax experts at EDA professional services can help you navigate the complex rules around tax residency, and ensure that you are compliant with UK tax laws.

By understanding your tax residency status, you can ensure that you are complying with UK tax laws and avoid any penalties or fines for non-compliance.

Be in touch for a free initial call.

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