Digital Tax Returns


UK Tax for International Residents

If you come to the UK to work or set-up a business you will probably need to pay UK tax. How do you determine whether you are resident for tax purposes and what are the consequences?
Individuals are liable to UK tax if they are deemed to be ‘resident’ in the UK in a specific tax year. There is now a residence test that individuals can take to determine if they are resident for tax purposes
Statutory Residence Test
There are 3 steps, or tests, that are used to determine residency:
  1. The ‘automatic overseas test’ will determine whether someone is conclusively non-resident for tax purposes. The test is somewhat complex and is affected by residence in previous tax years but if someone has spent less than 16 or 46 days (depending on their previous residence history) in the UK, or if they spend a substantial amount of the tax year working abroad, they will be deemed non-resident. If someone fails the automatic overseas test then next they need to take the ‘automatic residence test’
  2. The ‘automatic residence test’ will determine if someone is automatically deemed to be resident in the UK. Again, the test is somewhat complex but if someone spends more than 183 days in the UK, has a home in the UK and spends significant time there, or works full-time in the UK, they will be deemed resident in the UK for tax purposes. If someone fails both the automatic overseas and residence tests then they need to take the significant ties test to determine residency
  3. The significant ties test determines someones residency based on the ties they have to the UK - family ties, accommodation tie, work tie, 90 day tie and country tie. Again the rules of residence determination based on the significant ties test are complex and depend on the previous residence history.
Generally an individual is either resident or non-resident for the whole of the tax year however there are specific situations in which it is possible for individuals to split the tax year so that they are resident in the UK for only part of the year.
Domicile - the permanent home
A persons domicile is relevant for tax purposes if they have non-uk income or gains. A persons domicile is usually the country in which he has his permanent home. A person generally acquires a domicile at birth which, under UK law, is the fathers domicile (or mothers where the parents are not married). While a person can be resident in more than 1 country for tax purposes a person can only have one domicile.
Tax effects of Residence & Domicile
If someone is resident and domiciled in the UK then they are subject to UK tax on their worldwide income.

If someone is resident in the UK but domiciled elsewhere then they are subject to UK tax on their UK income and can choose whether to be taxed on their non-UK income using either the ‘arising’ basis or the ‘remittance’ basis. The ‘arising’ basis subjects someones non-UK income to UK tax as it arises whereas the ‘remittance’ basis subjects someones non-UK income to tax only to the extent that it is brought into (remitted) the UK. There are slightly different rules that govern the taxation of income and gains.
For non-uk domiciled individuals the remittance basis can be automatically used if their unremitted foreign income or gains are less than £2,000 in the tax. In most other cases the remittance basis must be claimed and in doing so the individual may be liable for a ‘remittance basis charge’. This charge is £30,000 if the claimant has been UK resident in at least 7 of the previous 9 tax years rising to £50,000 if resident for 12 of the previous 14 tax years. Also, if an individual is required to make a claim to use the remittance basis they are not eligible for a number of the standard allowances (personal, blind, married or CGT annual exemption).
Reliefs are available to reduce the tax payable on the remittance of foreign income arising from certain properties or where the income is brought into the UK to make certain investments.
Double Taxation Relief
It is possible that the same income or gains are liable to tax in more than one country. In this situation there will generally be a double taxation treaty between the 2 countries that provides for a way of ensuring that tax is not paid twice. The provisions of this treaty may specify that the income is exempt from UK tax or a credit can be made against the UK tax for the foreign tax already paid.
In Summary
If someone comes to the UK to work or set-up a business on a full time basis they are likely to be resident and liable for UK tax. They are likely to be domiciled outside the UK for tax purposes which means they will need to consider how to submit their foreign income to UK tax. If this foreign income is below £2,000 they can automatically claim to be taxed only on the income they remit to the UK. If their foreign income is more than £2,000 they will need to consider, based on their residence history, the tax options with regard to the ‘remittance basis charge’. Double taxation treaties are generally available between most countries to prevent the double taxation of income or gains
Next Steps
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