When do you pay tax when moving to the UK? Well, not only is it important, but it’s also extremely useful to be aware of your tax responsibilities and the allowances available to you in the UK and your home country. In this article, we briefly overview the rules about when do you pay tax when moving to the UK.

The UK Statutory Residence Test – The Three Types

This is where it all starts – identifying whether or not you can become a UK tax resident. It’s determined by what’s called the Statutory Residence Test.

The UK statutory residence test has three parts:

• The automatic overseas residence tests
• The automatic UK residence tests
• The sufficient ties tests

If you meet any of the automatic UK resident tests, or are resident in accordance with the sufficient ties, the default position is that you are resident for the whole tax year.

What are the automatic UK resident tests?

They look at a combination of physical presence and relevant connections to the UK to determine whether you are considered to be a UK resident.

Split Year Tax Treatment (of your Split Year Provisions)

It’s important to bear in mind the UK tax year (running Apr – Apr). In specific circumstances, when you arrive in the UK, you are allowed to divide the UK tax year in which you arrive into two parts.

A. The part before arrival (non-resident) and;
B. The part following your arrival (resident)

These are known as the ‘split year provisions’. They are for those who are arriving in the UK, who are starting to have a home in the UK, starting a full time job in the UK or returning to the UK from working full time overseas.

Non-residents are only taxed on specific types of UK-source income. Sometimes non-residents are taxed on UK-source capital gains, whereas UK residents are potentially taxable on their worldwide income and their capital gains too.

What is Domiciled in the UK?

The extent to which you are required to pay UK tax on income and gains generated outside the UK, entirely depends on what is termed your ‘domicile status’. The concept of domicile is essentially where you consider your permanent or indefinite home to be. This can be:

The country of your birth, or;

Where your father considered his permanent or indefinite home to be during your childhood or;

Somewhere that you build a life and consider home as an adult

Domicile and Remittance Basis

If your domicile (the place you consider your permanent home) is not in the UK, then you can potentially claim the remittance basis. Claiming the remittance basis allows you to only pay tax on non-UK income and capital gains, to the extent that it is considered to be “remitted” (ergo received into) to the UK. The remittance basis can be claimed or not claimed each year, that’s your choice and dependent on your preferences and circumstances. It’s important to note that the annual cost of claiming the remittance basis increases, alongside the length of your residence in the UK.

• < 7 years residence of previous 9 – loss of income tax allowance and capital gains tax exemption
• 7 years of residence of previous 9 – loss of income tax allowance and capital gains tax exemption, +plus flat fee of £30,000
• 12 years of residence out of the previous 14 year – loss of income tax allowance and capital gains tax exemption plus flat fee of £60,000
• After 15 years of residence in the previous 20 years, the remittance basis can no longer be claimed

For non-UK domiciled individuals (i.e. those who don’t consider UK as their permanent home), the first three years of residence in the UK (including the year of arrival), can also bring an entitlement to tax relief. This tax relief is based on any proportion of salary which relates to the number of days spent working outside the UK. This first three years tax relief also depends on conditions being met, as to where the salary is paid and retaining an appropriate proportion of the salary outside the UK.

Monies that you had before becoming resident in the UK would be considered tax free. Therefore, to benefit from this and any claim to the remittance basis, it is important to structure your bank account properly. This is something a specialist can help you with.

Finally, it’s important to know that there is no uplift to market value on arrival in the UK in terms of the basis for assets for UK CGT purposes, if that asset is sold whilst you’re a UK-resident. The entire difference between the original purchase price and sale process would potentially be subject to tax.

If you have any specific questions about your tax responsibilities, we can answer those for you based on your specific circumstances. We can also work with you on an on-going basis to help you to always prepare well in advance.

Here are some further useful, reputable UK tax resources for you:

https://www.gov.uk/tax-come-to-uk

https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3

https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm10200

https://www.rossmartin.co.uk/overseas-residence/2357-split-year-treatment-toolkit

The UK Statutory Residence Test, and other important things to know

For anyone arriving in the UK, a key piece of information is to understand the point at which they would be considered tax resident in the UK, and therefore when their liability to UK income and capital gains tax will begin.

You can read the full article now, or download the PDF version for free below.

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Since 2013 the UK has had a more formal test included within its legislation to determine when an individual will become a resident in the UK for tax purposes.

It often takes those moving to the UK by surprise that tax residency is determined entirely independently from an individual’s immigration status.

UK Tax Residence & the Statutory Residence Test

The test for UK tax residence is known as the Statutory Residence Test (SRT). The SRT has three parts:

1. Rules under which an individual will automatically be considered UK tax resident
2. Rules under which they will automatically be considered non-UK resident and;
3. Then an effective tie breaker test known as the Sufficient Ties Test.

When are you considered a UK Resident?

An individual will be considered automatically a UK resident if they spend more than 183 days in the UK, have their only or main home in the UK or work full time in the UK. The concept of having an ‘only’ or ‘main’ home in the UK, or ‘working full time in the UK’ are then defined further.

An individual who has not previously been a UK resident and is spending time in the UK for the first time, will automatically continue to be a non-UK resident if they spend 45 days or less in the UK or continue to have a full-time job outside the UK and spend 90 or fewer days in the UK with 30 or fewer of these being work days. Again, full-time work outside the UK and what counts as a work day for this purpose are further explained in the rules.

If an individual doesn’t meet either the automatic UK residence or non UK residence tests, then their residence status will be determined by the Sufficient Ties Test.

The Sufficient Ties Test looks at a balance of:

• physical days of presence and
• four relevant connections to the UK
  • being whether you have spent more than 90 days in the UK in either of the previous two tax years;
  • whether you have worked in the UK for more than 40 days in the tax year;
  • whether you have accommodation available to you in the UK and;
  • whether you have a spouse or minor child who is resident in the UK (known as the family tie)

As with the other tests, all these important concepts have further specific definitions which are included in the legislation and need to be considered.

Changes, given the Covid-19 Global Pandemic

In response to the current movement restrictions across the globe in the wake of the Coronavirus pandemic, HMRC have released additional SRT guidelines, to work in conjunction with their existing guidance for exceptional circumstances. Up to a total of 60 days in the UK which are considered to result from exceptional circumstances do not count for certain parts of the SRT.

The additional circumstances for COVID-19 that are being considered as exceptional are:

• Quarantine or self-isolation from following public health guidance or advise from a health professional as a result of the virus
• Advice not to travel from the UK by recommendation from the Government as a result of the COVID-19 virus
• The inability to leave the UK as a result of international border closure
• If your employer requests that you return to the UK temporarily as a result of the virus

Although individuals may by necessity have to remain unexpectedly in the UK, whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.

This may be relevant to a number of people arriving in the UK to delay the date of their residence in the UK, or prevent them from being considered resident earlier than would otherwise be the case.

What are the Split Year Rules?

Generally, an individual is either resident or non-resident for the whole of a UK tax year. But in certain circumstances, known as the split year rules, it is possible to divide the UK tax year into two parts:

1. one that is prior to the point at which the individual triggers the condition which made them UK resident and
2. the part following that point

Where these rules apply, UK tax residence (and therefore liability to UK tax) only arises in the later part of the year.

The split year provisions generally apply in circumstances when an individual becomes resident because they have taken up a full-time job in the UK or are accompanying someone who has a full-time job in the UK or when someone acquires a home in the UK.

It is obviously very important to establish whether you are entitled to benefit from these rules on arrival in the UK, as this may also help line up your tax position in the UK with your tax position in the country you are moving from.

This can prevent problems arising, from being taxable for a period of time in both countries, and needing to rely on tax treaties to avoid double taxation.

Tax, for UK Residents

The UK operates a system of independent taxation, with individuals having their own residence status, having their own entitlement to annual allowances and each being responsible for any taxation in respect of their own income and capital gain.

This means that situations can arise where one spouse is resident and the other is not, especially where the move is for work reasons for one spouse, and there is children’s education to consider. This can be an advantage where it does occur and present more planning opportunities.

Tax, for non-UK Residents & Remittance

For an international individual, whose usual home is not in the UK (what is referred to as being non-UK domiciled under UK tax rules), they may be able to benefit from specific tax rules in respect of their non UK income and gains, known as the remittance basis. Under these rules, the foreign income and gains are only subject to UK tax if brought to or used in the UK.

Those non-domiciled individuals with jobs that still require them to work partly overseas after arriving in the UK, can also benefit from a further advantage under the remittance basis.

How does the Remittance Basis work?

Under what are known as ‘the overseas workdays relief rules’, non-uk domicilied individuals can pay tax on just the proportion of their salary which relates to UK working time. It just needs to be paid into a specific, non-UK bank account, and they must keep the proportion of their salary which relates to non UK working time outside the UK. This relief is available for the first three years of residence in the UK. There are detailed rules to follow when claiming this relief, so advice should be sought on an individual’s particular circumstances.

The cost of claiming the remittance basis increases over time with it just resulting in a loss of tax free allowances for the first seven years, then increasing to £30,000 per annum and to £60,000 after 12 years. After 15 years of residence, the remittance basis cannot be claimed.

All the rules outlined above count part years of residence in the time limits so timing of becoming resident in the UK can often be very important.

Another key point: to benefit fully from the remittance basis (and the fact that the UK will not tax amounts of money that an individual had accumulated before becoming UK resident…), it is important to have bank accounts set up correctly and plan in advance how you’ll pay for UK living costs as efficiently as possible. It also helps avoid what are known as the mixed fund rules that apply to accounts with different sources of income where you are considered to withdraw the least tax efficient amounts first.

Finally, it is worth being aware that there is no increase for capital gains tax in the value of assets to their market value at the date of arrival. Capital gains tax will potentially be due on increases in value, from the original purchase price and for foreign assets take exchange rate movements into account.

In summary, to make the most of your move to the UK, the old adage forewarned is forearmed rings true – advance preparation is crucial.

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This is our area of technical expertise, so we’re proactive in seeking new regulation changes, and knowing what’s on the horizon. Everyone we work with has different goals. We honour your unique starting point, proudly offering a truly personal and adaptable service for you.

For advise and to see how we can add value to your move to the UK, please contact us at Everfair Tax.