Residence & Domicile
Leaving or returning to the UK? Split your time between the UK and overseas?
Then it may be necessary to consider your residence status for UK tax purposes. As a general rule, UK residents are charged to UK tax on their worldwide income while non-UK residents are charged to UK tax on UK-source income only.
It is therefore crucial that your residence status is correctly determined as it may have a significant impact on your liability to UK tax. PD Tax have assisted many clients with various residence issues which have affected their UK tax bill and helped them identify areas where they can plan for UK tax efficiently.
Further complexities can arise where you are UK resident but domiciled elsewhere, and wish to claim the remittance basis.
PD Tax are experienced in advising both those coming to and those moving away from the UK as well as those who are domiciled outside the UK.
The clients were both born in the UK with British citizenship and emigrated to Australia where they lived and worked for over 30 years.
Following retirement, the clients purchased a property in England with the intention of spending up to 5 months a year in the UK and the remainder of the year in Australia.
They were worried that due to the recent introduction of the Statutory Residence Test (STR) they may be considered UK residents, making them subject to tax on their worldwide income including Australian pensions and bank interest.
Following an initial meeting, we provided detailed written advice which set out the key principals in relation to their residence status including the impact of the UK-Australia double tax treaty.
Due to the number of days they expect to spend in the UK, we advised that strictly they would be UK resident under the SRT.
However, we were further able to advise that the UK-Australia double tax treaty had a tiebreaker clause for dual residents, which in their circumstances would award residence to Australia.
Both clients are non-UK resident therefore their Australian income is outside the scope of UK income tax.
Their residence position and double tax treaty exemptions will need to be carefully documented on their UK tax returns going forwards.
Our client was a US national who had historically lived and worked full time in the USA, whilst their spouse lived and worked in the UK.
However, in order to provide on-going care for their spouse, our client began to spend an increasing amount of their time in the UK.
With this in mind, they required advice on their residence status and their liability to UK tax on their worldwide income.
We applied the rules of the statutory residence test to our client’s circumstances and determined that they were UK resident for tax purposes.
However, as our client was also tax resident in the USA, it was necessary for us to refer to the US-UK Double Tax Treaty in order to determine which country took priority.
Under Article 4 of the treaty, an individual is resident a) in the state in which they had a permanent home available to them, or if they have a permanent home available to them in both states, b) in the state with which their personal and economic relations are closer (i.e. “centre of vital interests”).
Our client had a permanent home available to them in both the UK and the USA. Therefore, the next step was to examine their circumstances and determine whether their centre of vital interests is in the USA or the UK. As part of this work, we considered the following:
- The source of their income (i.e. UK or USA) and the amounts;
- Where our client’s belongings and pets were kept;
- Where our client had the strongest network of friends and family;
- When our client was unwell, in which country did they receive medical treatment;
- Did our client hold a US and/or driving licence?
- Was our client on the electoral register for both countries? Did they vote?
- Our client’s long-term view, i.e. did they intend to return to the US to live permanently?
After taking into account the above factors, we found that on balance that our client’s centre of vital interests was in the US, and was therefore treated as US resident for tax purposes.
On the submission of our client’s self-assessment tax return, we set out our conclusions in the “white space” of the return in order to notify HMRC of their circumstances and to minimise the risk of a challenge in the future, should HMRC take a differing view.
As our client was non-UK resident, they were subject to UK tax on their UK source income only.
We prepared our client’s tax return in light of the above and made a claim for relief by submitting a HS302 dual residents claim form.
Following the submission of their tax return, our client could sleep easy knowing that their tax affairs were in order.