In these days of a highly mobile global workforce, tax jurisdictions across the world are intent on ensuring that they get their share of the tax pie from corporations and individuals who work within their boundaries.
Although every country has its own tax residence rules there is a common theme followed by most, including the UK. For individuals, this is based on where their income arises and how long they spend in the host country.
For newcomers to and those leaving the UK, their residence is determined by what’s known as a Statutory Residence Test based on 4 criteria:
- How much time you have spent in the UK in a tax year;
- A set of checks called the ‘automatic overseas test’. If you meet any of them you’ll be regarded as non-resident for tax in the UK;
- Whether you meet the ‘automatic UK test’. Again a number of criteria, which if you meet any of them, will mean that you will be regarded as a tax resident here;
- Finally, the ‘sufficient ties test’ in the event that the other tests are inconclusive. This determination is based on things like work, accommodation, family and economic ties.
Most countries, including the UK, tax individuals on their ‘worldwide income’. So, if you are tax resident in the UK you will be charged tax not only on all your UK income but also on any overseas income such as interest, earnings, profits and property rentals.
Because you can be a tax resident in more than one country at one time, you can find yourself subject to tax on the same income in two countries! However, if a Double Taxation Treaty exists between the UK and the other country, which is likely because the UK has more than 130 such treaties, you will find that the income will effectively be taxed only in one country. A form of tax credit can be applied to avoid this ‘double taxation’.
Many people will have heard of the expression ‘non-doms’. This is a common description applied to people who are a UK tax resident but who are not domiciled in the UK. Your domicile is taken to mean the country you consider to be your permanent home. You start off with a domicile of origin – usually where your father was born, but can change this to a domicile of choice later in life.
For a UK tax resident, being non-domiciled can have an important effect on the way in which your overseas income is taxed in the UK. Instead of paying tax on your worldwide income as it arises, you can elect to pay tax only on the ‘remittance basis’ - what you actually bring into the UK.
Although this sounds very attractive, the UK Government have considerable additional charges waiting for those who choose to do this. Together with new tax laws which ‘deem’ individuals to be UK domiciled after so many years resident in the UK, this can be an area of tax where you should consider taking specialist advice.
If you have recently arrived in the UK, are planning to leave the UK to live and work abroad, either temporarily or permanently and are unsure of your tax status, or believe you are affected by the new domicile rules PayStream can help. We offer a Residence and Domicile Review Service for people who are either leaving the UK to work abroad, or are returning to the UK. The service looks at your individual circumstances and provides guidance and advice to ensure your financial affairs are dealt with in the most tax efficient way.
