Tax residence is determined by a number of factors including how many days you spend in the UK, where you work and where you have homes.
A person may be resident for tax purposes in more than one country in which case their status may be determined by tax treaties between the two countries.
Tax residence is particularly relevant for income and capital gains tax. The general rule is that a UK tax resident is liable to pay UK tax on all income and gains from anywhere in the world.
A non-resident is only liable to pay UK tax on UK sources of income and gains.
For non-residents, earnings arise in the UK only to the extent that the work was carried out in the UK, or a business has a permanent establishment in the UK. This general rule is subject to many exceptions and detailed provisions.
Residence can also be relevant in determining whether an employee is entitled to claim tax relief for certain travelling expenses.
Statutory residence test
Whether you are a UK resident for a tax year or not is governed by a statutory residence test. Under this test, you first consider whether you are automatically non-resident by following these tests in this order:
- the first automatic overseas test - a person is non-resident if they have spent fewer than 16 days in the UK during the tax year (6 April to the following 5 April)
- the second automatic overseas test - a person is non-resident if they were non-resident for the three previous years and spent fewer than 46 days in the UK during the tax year
- the third automatic overseas test - a person is non-resident if the work full-time overseas and spend fewer than 91 days in the UK during the tax year, of which fewer than 31 were days when they were working (there are rules to determine if someone is working full time overseas and to define a working day).
If none of the three tests are passed, you then consider whether the person is automatically resident by following these tests in this order:
- the first automatic UK test - a person is automatically UK-resident if they have spent 183 days or more in the UK during the tax year
- the second automatic UK test - a person is automatically UK-resident if they have a home in the UK for at least 91 consecutive days, of which at least 30 fall within the tax year (detailed guidelines define 'home' and other aspects of this test) and had no overseas home or were present in it for fewer than 30 days in the tax year.
- the third automatic UK test - a person is UK-resident if they work sufficient hours in the UK (subject to specific definitions and other provisions).
If none of the six tests above determine residence, you use the sufficient ties test.
There are four 'ties':
- family tie
- accommodation tie
- work tie
- 90-day tie
There is also a fifth tie for determining the residence status of individuals who are leaving the UK:
- country tie.
UK-residence is then determined by:
- how many ties a taxpayer has met for each tax year; and
- how many days the taxpayer has spent in the UK.
Generally, the more days a taxpayer spends in the UK, the fewer ties must be met to be non-resident. This is also affected by whether the taxpayer arrived or left the UK during the tax year, and whether they were UK-resident in any of the three previous years.
A taxpayer who has not been a UK resident for the last three tax years wants to calculate if they will be a UK resident in the current tax year. If they spend:
- fewer than 46 days in the UK, they are automatically non-resident
- between 46 and 90 days in the UK, they are UK-resident only if they meet all four sufficient ties
- between 91 and 120 days in the UK, they are UK-resident if they meet three or more of the four ties
- between 121 and 182 days in the UK, they are UK-resident if they meet two or more of the four ties
- 183 days or more, they are automatically UK-resident.
A day spent in the UK usually means a day when the taxpayer was within the UK or its territorial waters at midnight at the end of that day.
There are some exceptions to this, such as if a person's departure from the UK is delayed for unavoidable reasons, such as because of illness or an unexpected travel disruption.
A taxpayer is usually UK-resident or non-resident for a whole tax year.
There is an exception known as the split year treatment where a taxpayer may be regarded as UK-resident for part of a tax year and non-resident for the rest in which they start or stop residence in the UK.
In order to qualify the taxpayer must satisfy one of the split-year rule cases.
In these cases it is not always the date of arrival or departure where the year is split so it is important to check the exact rules in each situation.
There are also quite complex provisions which apply in the year of death, and particularly if the taxpayer has recently moved abroad.
This is a very broad summary of detailed and complex regulations, which are supported by detailed guidance. Contact us so that we can advise you on your specific situation.
Also, see our page on the rules relating to domicile.