New residence rules for British expats

New residence rules for British expats
23 August 2012

BRITISH expats! Do you want to be regarded as non-resident for tax purposes? Then take note: the UK government is another step closer to establishing a statutory residency test.

Plans to do so were first announced in April 2011. A consultation document was subsequently published in June 2011, seeking views from the industry and public on how the test might most fairly be devised.

In December, the Treasury announced it was postponing the publication of its draft legislation, effectively delaying the introduction of the new test by one year to 2013.

What does the proposed statutory residence test mean for expats? cashy takes a closer look…

UK residence rules

The current UK residence rules are based on the number of days of residence in the UK and are relatively generous.

A person who is currently not resident in the UK will always be treated as resident in the Uk if they spend 183 days or more in the UK in any tax year. If they visit the UK on a regular basis and spend, on average, 91 days or more in the UK in a tax year (taken over a period of four years), they will be treated as resident in the UK.

Under the new rules, due to come into force from 6 April 2013, you will not be resident in the UK for a tax year if you fall under any of the following conditions:

* You were not resident in the UK in all of the previous three tax years and you are present in the UK for fewer than 46 days in the current tax year;

* You were resident in the UK in one or more of the previous three tax years and you are present in the UK for fewer than 16 days in the current tax year;

* You leave the UK to carry out full-time work abroad (35 hours a week or more), provided you are present in the UK for fewer than 90 days in the tax year and no more than 20 days are spent working in the UK in the tax year.

Leavers and arrivers

Many British expats living abroad but flitting back to the UK will be classed as ‘leavers’ (meaning that they were resident in one or more of the three tax years immediately preceding the year of return) not ‘arrivers’ (those who were not resident in any of the three tax years preceding the year of return).

Leavers can only be in UK for less than 16 days in a tax year to have absolute certainty of non-residence. That’s hardly enough time to get over jet lag!

However, if you want more days in UK you must determine how many ‘connecting factors’ apply to you. For ‘leavers’, the five connecting factors, simply put, are:

1. UK resident family connections;

2. Substantive UK employment (including self-employment);

3. Accessible UK accommodation;

4. You spent 90 days or more in the UK in either of the previous two tax years;

5. You spend more days in the UK in the tax year than in any other single country.

Once you have calculated your connecting factors apply them to the ‘leavers’ scale below for your classification of non-residence from 6 April 2013.

Less than 16 days in UK: Always non-resident

16-45 days in UK: Resident if you have four factors or more (otherwise not resident)

46-90 days in UK: Resident if you have three factors or more (otherwise not resident)

91-120 days in UK: Resident if you have two factors or more (otherwise not resident)

121-182 days in UK: Resident if you have one factor or more (otherwise not resident)

183 days or more in UK: Always UK resident

There are potential inheritance tax implications of UK residence for non-domiciled spouses if they are deemed to be UK resident on a regular basis under the new rules.

The new rules will be complex, so you really need to plan for those UK visits or risk being declared UK resident and taxed accordingly. Is it time to start considering some changes to your yearly migration?

Pic credit: freedigitalphotos.net

Do you think these new rules will affect you? Will you change your holiday patterns?

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