UK Resident - UK Ordinarily Resident
You are resident for income tax in the UK if you do not meet the criteria for being Automatic Overseas Resident or other close ties under the Statutory Residence Test 2013.
UK Resident is different to UK Domicile. Whether you are UK Domicile or Non UK Domicile decides whether your estate on death is subject to UK Inheritance Tax on Worldwide Assets or just UK assets. UK Resident and UK Ordinarily Resident is establish liability to UK income taxes and capital gains taxes.
The tax year in the UK is from 6th of April to 5th of April the following year, with tax returns due by 31 January in the year after the end of the tax year.
E.g.: Tax Year 6 April 2013 to 5th April 2014, Self Assessment Tax Return is due 31 January 2015.
UK Residency means being subject to UK Income Tax
- If you are resident in the UK, you are subject to UK taxation laws.
- Even if you are not resident but have assets in the UK, those assets are subject to UK taxation laws.
- The days of arrival and departure are generally ignored, although a ruling in 2006 said that the day of arrival and departure should be counted as one day in total.
- The number of days you spend in the UK are accumulated over the year and if you reach 183 days, you are resident in the UK for tax purposes.
- If you arrive with the intention of staying in the UK for more than 183 days, you are resident for tax purposes on day one.
- If you live outside the UK for over 183 days, you are not resident. This does not mean you can move overseas for one year and be free of income or capital or inheritance taxes. You may still be deemed ordinarily resident and therefore subject to capital taxes. You would also still be UK domiciled and subject to inheritance taxes.
AS WELL AS BEING UK RESIDENT THERE ARE ALSO TAXES FOR BEING ORDINARILY RESIDENT
Ordinarily Resident Test - for Capital Gains Tax
As well as being resident for income taxes (Statutory Residence Test), if the UK is your 'habitual home' i.e. you 'normally' live in the UK or you arrive in the UK and intend to 'normally' live in the UK, you are 'ordinarily resident' and therefore also subject to UK capital gains tax.
Ordinarily Resident: Foreign National Coming to UK
If you come to the UK with the intention of staying in the UK for 3 or more years, you become ordinarily resident on day 1. This means you are subject to both income taxes (as you are resident) and capital gains taxes (as you become ordinarily resident). Therefore, many people claim that they are coming to the UK for 2 years or less. The danger is then if you stay for longer than 2 years.
UK Ordinarily Resident - Leaving UK
If you move overseas for a period of time out of the UK and become a non-resident, you may still be deemed ordinarily resident for capital gains tax purposes. You cannot simply move overseas for a year, sell your portfolio of rental property investments and avoid capital gains taxes and return to the UK a year later.
IF YOU LEAVE THE UK WITH A DEFINITE INTENTION NOT TO RETURN TO THE UK YOU ARE FREE TO SELL ASSETS AND ARE FREE FROM UK CAPITAL GAINS TAX IMMEDIATELY (YOU MAY STILL BE LIABLE TO LOCAL TAXES WHERE YOU LIVE). HOWEVER, IF YOU RETURN PERMANENTLY TOO EARLY OR SPEND TOO MUCH TIME IN THE UK OVER A 5 YEAR PERIOD YOU MAY FALL BACK INTO BEING ORDINARILY RESIDENT AND CAPITAL GAINS TAX WOULD BECOME PAYABLE ON ANY DISPOSALS MADE IN THE TIME YOU WERE LIVING, SUPPOSEDLY PERMANENTLY AS AN OVERSEAS RESIDENT.
Difficult to Lose UK Ordinarily Resident Status
If you habitually visit the UK after you have left and spend too much time in the UK, you will still be deemed ordinarily resident and subject to capital taxes.
- 91 Day, 5 Year Rule - Broadly speaking, if you spend 91 days or more each year for five consecutive 'tax years' in the UK, you retain Ordinarily Resident status.
- After 5 Years you become ordinarily resident overseas and not subject to capital taxes.
- Deliberate Intention - You must clearly be able to demonstrate that you do not intend to make habitual and substantial visits to the UK
We suggest you cross reference the above rules with the Statutory Residence Test 2013. At the time of writing (March 2013), HMRC has been unable to advise us on the interaction between the above rule and the Statutory Residence Test 2013 as their technical desk does not yet have the published HMRC practice notes.
If you want anymore advice on UK resident rules. Contact Us.