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The making of a resident

Those working abroad will need to get to grips with the new rules on residency as there will be tax implications

I have to spend a lot of time in other countries for work. I have been told I need to be more careful about when I travel to and from the UK as the residency rules are about to change. What is going on?

In the summer, the Government published a consultation paper explaining its intention to introduce a statutory residence test, with the end of consultation being September 9. The aim is for individuals and their financial advisers to be able to assess their residency status in a straightforward way, including the introduction of an online residency test tool.

Residence and domicile status can have significant implications in terms of an individual’s liability to UK tax. An individual can be resident in more than one country at the same time but can only have one domicile. A person is generally domiciled where his or her permanent home is situated. A domicile of origin is acquired at birth, usually from one’s father.

There are many factors that affect domicile but some of the main points are given in the HMRC6 document called, Residence, Domicile and the Remittance Basis.

Domicile is distinct from nationality or residence. The Government is also consulting on the taxation on non-domiciled individuals following its announcement in the 2011 Budget, which included the following measures:

  • Increasing the annual charge to £50,000 for non-domiciles who claim the remittance basis in a tax year and who have been UK resident in 12 or more of the 14 years prior to the year of claim.
  • Allowing non-domiciles to bring overseas income and capital gains to the UK tax-free for the purpose of commercial investment in UK businesses and
  • Simplifying the way in which some aspects of the current rules work.

The terms residence and ordinary residence are not currently defined in the Taxes Acts. HM Revenue & Customs guidelines are largely based on rulings of the courts, whereas domicile is a concept of general law. This is why there has been the recent announcement of the introduction of a statutory UK residency status.

Residency drives how an individual or company is liable to UK tax. The SRT covers only individuals and will override all existing legislation, case law and guidance.

There are three parts to the test that are complex.

The first section of the test establishes the rules for those who are not UK-resident based on days in the UK and whether full-time work is undertaken overseas.

Your residency is unclear from this first part of the SRT so we move on to the second part. Someone is deemed UK-resident for the tax year if he or she is in the UK for 183 days or more, whose homes are all in the UK and who has a full-time job in the UK.

As you only meet the homes requirement and not the other two criteria, we move on to the third section of the test.

This final section, which is added on top of counting days in the UK, considers whether or not your family is resident in the UK, whether you have accessible accommodation in the UK and whether you use this accommodation, whether you have substantive work in the UK but not on a full-time basis and more time is spent in the UK than in other countries.

I will keep you up to date as further confirmation of the SRT appears and will work with you to establish if you are UK-resident for this tax year.

Kim North is managing director of Technology and Technical

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