OVERSEAS RESIDENT LANDLORDS

Residency and domicile

Since April 2013 we have new law that introduces precise tests for residency or non-residency. The new rules are split into three parts. The first is a simple set of three situations and if you satisfy any one of them you are automatically non-resident. The second is a set of three questions and if you satisfy any one of them you are automatically UK resident. The third is more complicated to deal with cases where you cannot satisfy any of the automatic tests. It awards points for various aspects of your personal situation called “ties”. Then the number of points you score for your ties and the number of days you spend in the UK are compared with a table to show whether you are UK resident or not. While the first two tests are very straightforward the third is complicated. If you have any doubts about your residency status you should contact us.

The HMRC guidance notes run to 105 pages because many of the terms have precise legal meaning and they have also tried to provide explanations for many slightly unusual situations. The following is an incomplete extract from the HMRC guidance provided here as introduction.

The automatic non-resident test

You are automatically non-resident for a tax year if you meet any one of the following tests.

First automatic overseas test

You were resident in the UK for one or more of the three tax years preceding the tax year, and you spend fewer than 16 days in the UK in the tax year. If an individual dies in the tax year then this test does not apply.

Second automatic overseas test

You were resident in the UK for none of the three tax years preceding the tax year, and you spend fewer than 46 days in the UK in the tax year.

Third automatic overseas test

You work full-time overseas for the tax year without any significant breaks from that overseas work, and:

  • You spend fewer than 91 days, excluding deemed days, in the UK in the tax year, and
  • the number of days in the tax year on which you work for more than three hours in the UK is fewer than 31. The full-time overseas part of the test does not apply to you if you are an international transportation worker.

If you do not meet any of these automatic overseas tests you should look at the automatic UK tests
below.

If you meet any of the automatic UK tests you are resident. If you do not meet any of the automatic UK tests you will need to consider the sufficient ties test.

The automatic residence test

Subject to not meeting any of the automatic overseas tests, you are automatically resident in the UK for a tax year if you meet any one of these tests:

First automatic residence test

You spend 183 days or more in the UK in the tax year.

Second automatic residence test

The second automatic residence test is relevant if you have a home in the UK. You will meet this test where:

  • you have a home in the UK for a period of more than 90 days
  • you are present in that UK home on at least 30 separate days (individual or consecutive days) during the tax year, and
  • while you have that UK home, there is a period of 91 consecutive days, some of all of which falls within the tax year in question, when you have no home overseas, or have one or more homes overseas in none of which you are present for more than 30 (not necessarily consecutive) days during the tax year.

If you have more than one home in the UK, you should consider each of those homes separately to see if you meet the test. You need only meet this test in relation to one of your homes.

Sufficient ties test

If you don’t meet any of the automatic overseas tests or any of the automatic UK tests, you should use the sufficient ties test to help you decide your UK residence status for a tax year. This test examines your ties to the UK in the following areas:

  • family
  • accommodation
  • work
  • number of days spent in the UK
  • whether you spend more time in the UK than elsewhere and applies rules to determine whether those ties are sufficient for you to be considered UK resident for tax purposes.

The sufficient ties test can also apply to a deceased person.

The number of days you spend in the UK in a tax year dictates the number of UK ties that are needed for you to be UK resident.

TABLE A: UK ties needed if you were UK resident for one or more of the three tax years before the tax year under consideration
Days spent in the UK in the tax year under considerationUK Ties needed
16-45At least 4
46-90At least 3
91-120At least 2
Over 120At least 1
TABLE B: UK ties needed if you were not UK resident for one or more of the three tax years before the tax year under consideration
Days spent in the UK in the tax year under considerationUK Ties needed
46-90At least 4
91-120At least 3
Over 120At least 2

Different tables apply to the residency of deceased persons and to those who arrive in the UK in the tax year and those who leave the UK during the tax year “split year treatment”

Before attempting to apply the above tables you should study the definition of “day” and should study the conditions required to acquire a “tie”.

Click the link for full details of the Statutory Residence Test

The new statutory residence test is complicated and requires expert skills to apply it. If you have any doubt as to your residency status or want help in planning future visits please contact us.

The above notes are only a rough guide to the UK statutory residence test. It must also be pointed out that many of the words, terms and phrases herein have a special meaning given to them which we have not repeated in this article.

Domicile

Domicile is more clearly defined, though it is generally much more complex to determine. It is often described as the country you consider to be your “mother country”. But if you were born in the UK you will normally be challenged if you claim that you are domiciled elsewhere. Everyone has a domicile, but it can change. For example a second generation of a migrant family may consider that their country of birth (and not the parents’ country of birth) is their domicile. If a person remains in the UK for more than seventeen years, it will be presumed that the UK is the new domicile.

HMRC has produced some excellent notes which can be found at www.hmrc.gov.uk/international/domicile.htm.

UK residents who are not domiciled in the UK will normally pay UK tax on all their income arising outside the UK unless they use the remittance basis. After seven years of being resident in the UK but not domiciled in the UK there is a charge for using the remittance basis of £50,000. This applies to those satisfying certain additional tests as to how long they have been UK resident. The price goes up as the years of UK residency increase.

For more information on the Remittance Basis for a non-domiciled person www.hmrc.gov.uk/international/remittance.htm.

© Landlords Tax Services Ltd 2016 All Rights Reserved - In an article such as the one on this page we can only give brief general guidance and cannot cover all situations. This guidance may not cover all your personal circumstances and so you should not rely on it. Before taking action or not, always do your own specific research and seek appropriate professional advice which takes into account your personal circumstances, with the full facts of the case and all documents to hand. Neither Maurice Patry F.C.A. nor Landlords Tax Services Ltd can be held responsible for the consequences of any action or the consequences of deciding not to act.