If you have interests in the UK then it is important to understand your status for tax residency in UK. Whether or not you are considered a UK tax resident can determine whether it’s your worldwide income or just your UK income that will be subject to tax in the UK. As you can imagine determining your status is not always straightforward so HMRC have developed the statutory residence test to assist. In this article we will explore tax residency in UK in more detail.
Resident v Non Resident
Before you try to determine your own status of tax residency in UK it is important to understand that this is not always a straightforward status to determine and is one that often requires assistance from a professional.
It is also important to know what the tax consequences are of each potential outcome:
- Tax Resident in UK – Will usually pay UK tax on their worldwide income (this may not apply to non domiciled residents which we will explore later)
- Non resident – Only pays tax on their UK income but not their foreign income
The Statutory Residence Test
The statutory residence test is HMRC’s way of determining your tax residency in UK based on the number of days you spent in the UK in a particular tax year. The test can be extremely simple to use or extremely complicated depending on your individual circumstances. If any of the statements below apply to you then your status of tax residency in UK should be straightforward (please note that this is not the full test but rather a simplified version).
You are automatically a tax residency in UK if either of the following statements apply to you:
- You spent 183 days or more in the UK within the last tax year
- Your only home was in the UK – you must have owned, rented or lived in it for at least 91 days in total – and you spent at least 30 days there in the tax year
- You spent fewer than 16 days in the UK (or 46 days if you have not been considered tax resident in the 3 previous tax years)
- You work abroad full-time (averaging at least 35 hours per week) and spent fewer than 91 days in the UK of which no more than 30 were spent working
3 Step Process To Know Your Status Of Tax Residency in UK
- If you’ve been in the UK for less than 183 days in the tax year then go to step 2.
- If you meet any of the automatic overseas tests you will not be resident in the UK for that tax year. If you do not meet any of these tests go to step 3.
- If you meet any of the automatic UK tests or the sufficient ties test, you will be UK resident for that tax year. If you do not meet any of these tests you will not be resident for that tax year
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A non domiciled resident is a UK tax resident who has their permanent home outside the UK. This may sound confusing at first but the most common example is a foreign national temporarily living in the UK. Those who qualify for “non dom” status will not pay tax on the first £2,000 of foreign income or gains they make, providing they do not bring it into the UK. Following this they can choose between 2 options to tax their foreign income:
- The arising basis – Individuals will pay tax on their worldwide income as it arises.
- The remittance basis – Individuals will pay UK tax on their UK income plus foreign income that they bring to the UK. Opting for this remittance basis usually results in the loss of personal allowances and capital gains allowances. It may also be necessary to pay an annual charge of up to £60,000 if you have been resident of the UK for longer than 6 years. Since April 2017 those born in the UK and long term residents who have been resident in the UK for 15 of the last 20 tax years can no longer claim the remittance basis.
Reporting Foreign Income
What Counts As Foreign Income?
Foreign income is any income that originates from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign. Some common examples of foreign income include:
- Wages when you work abroad
- Foreign investment income such as dividends or bank interest
- Rental income on overseas property
- Income from pensions held overseas