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New residency rules came into force from 2013/14 onwards which, at first glance, appear to offer a simpler way of determining your residency status. This is important as if you are deemed to be non UK resident, you will not be subject to UK tax on your foreign income. However, whilst the rules offer greater certainty over your position, they are also very prescriptive, making it easy to fall foul of the rules.
Here are three areas to be aware of if your residency status is in question:
Under most tests there is a limit on the number of days spent in the UK – differing according to the relevant test. It is worth being aware of exactly how many days you can spend in the UK under the tests relevant for you. Just one day over could result in a much larger tax bill!
If you are claiming non residence on the basis you are working sufficient hours overseas, it is worth being aware that a break of over 31 consecutive days from the overseas employment could potentially result in failing the test. Whilst you may not expect to be absent for such a long period, unexpected circumstances could easily mean that this occurs. Advice should be sought as soon as possible if this may be the case.
In your initial year of departure under certain circumstances split year treatment may be available. This would deem you to be non-resident on your departure from the UK. Once this has been claimed, you may then think that that tax year has been dealt with and the claim is secure. However, one of the conditions for this claim is that you must also be deemed to be non-resident in the following tax year. Should you end up resident again for whatever reason, you will lose the split year treatment for the previous year, which could end up being costly as more income falls back in to the UK tax net.
As mentioned in Point 1, you could end up spending longer in the UK than originally intended due to unexpected circumstances – the risk of Ebola is one example. In some situations, you may be able to claim up to 60 days as relating to ‘exceptional circumstances’ – these would then not be included for certain day counts when considering the various tests.
However, there are certain day counts which cannot be reduced by exceptional circumstances, such as days worked in the UK for the third automatic overseas test. It is therefore worth getting advice as soon as possible if you think that exceptional circumstances may apply to you.
If you are spending a lot of time away from the UK, it is worth not only reviewing your status based on your intentions when leaving the UK, but also to keep this under regular review, to ensure that one day spent astray won’t end up bringing your foreign income into UK tax when this could be avoided. We would be happy to assist you with this where required.
Emily Harrison, Tax Consultant
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