Never Mind Brexit, I just want to Exit! How a UK resident non-domiciliary can become non-resident

7 December 2018

If you are a UK resident but non-UK domiciled person and you are thinking of leaving the UK, you need to know how to leave the UK effectively and the impact on your tax position.

Introduction

If you are a UK resident but non-UK domiciled person and you are thinking of leaving the UK, you need to know how to leave the UK effectively and the impact on your tax position.

This article explains how you can become non-UK resident and gives an overview of how this affects your tax position.

Click here for more information about domicile and its effect on your tax position.

Impact of residence on your UK tax position

UK resident

If you are UK resident but non-domiciled, you are taxable on your UK income and on capital gains which arise on UK assets.

You are eligible to claim the “remittance basis” which, broadly, means that your non-UK income and gains on non-UK assets are not taxable in the UK unless and until you “remit” them. Remittance has a wide meaning but, essentially there will be a remittance if you or a close family member or a company or a trust with which you are closely connected brings the funds (or something representing them) to the UK directly or indirectly.

You are subject to inheritance tax on your UK assets but non-UK assets are outside the scope of inheritance tax.

Special rules apply in relation to UK real estate and companies which own UK property.

Not UK resident and non-UK domiciled

If you are not UK resident and NOT UK domiciled:

• You are not subject to UK tax on any income arising outside the UK.
• In principle, you remain subject to UK tax on income from UK sources, but most types of income are exempt including interest and dividend income.
• The main type of UK source income which remains taxable is rental income on UK properties.
• You are not subject to UK capital gains tax on most assets whether they are situated in the UK or outside the UK. There is an exception for UK residential property which is subject to a special capital gains tax charge.  From 6 April 2019, commercial property (and shares in companies owning residential or commercial property) will come within the capital gains tax charge.
• You remain subject to inheritance tax on your UK assets but are not taxable on non-UK assets. Special rules apply to residential property owned by a non-UK company.

If you spend fewer than five years abroad you can be subject to UK income tax and capital gains tax when you return to the UK, on income and gains which arose whilst you were non-resident.

Deemed Domicile

Domicile is a general law concept and an individual can remain non-UK domiciled indefinitely.

Deemed domicile is a tax concept. Broadly, someone who remains non-domiciled for general law purposes will be treated as UK domiciled for all tax purposes once they have been resident in the UK for more than 15 out of the 20 tax years ending with the current year. This means that a person who comes to the UK and lives here will become deemed domiciled at the beginning of their 16^th tax year of residence. Part years count and you can become deemed domiciled whilst non-resident.

In order to avoid becoming deemed domiciled, you must leave the UK in year 14. If you leave the UK in your 15^th year of residence, you will still become deemed domiciled in year 16 even if you are non-resident in that year.

In order to lose deemed domicile you must remain non-resident for at least 6 complete tax years, although your income tax and capital gains tax liabilities will be limited as soon as you become non-resident. Once you have been non-resident for more than 3 years, you will escape the inheritance tax net on non-UK assets but if you return to the UK before the 6 years are up you will become deemed domiciled on your return.

Becoming non-resident

If you are currently UK resident and want to escape the UK tax net or avoid becoming deemed domiciled (or just escape the UK!), you need to become non-UK resident.

A statutory residence test was introduced in 2013.  Although complex, the test will, in most cases, enable a person who wishes to be non-resident to make sure that that is the case.

If you are resident for part of the tax year you are normally treated as resident for the whole of the tax year.  In some cases, it is possible to obtain “split year treatment”.  If you are eligible for split year treatment, it means that:

• you will be treated as UK resident up to the day you leave the UK; and
• non-resident from the day after until the end of the tax year.

(Similar rules apply for those coming to the UK).

If split year treatment is not available then you would be treated as UK resident for the whole tax year.  Income arising and gains made after you actually leave may be taxable in the UK.  A double tax treaty between the UK and your new country of residence may prevent a double charge.

Split year treatment is only available in specific circumstances.  It broadly applies where an individual:

• is going to work outside the UK;
• is coming to work in the UK;
• ceases to have a home in the UK; or
• acquires a UK home for the first time.

How does the statutory residence test work?

There are three stages to the statutory residence test which have to be applied in order:

• Are you automatically non-resident?
• Are you automatically UK resident?
• If you are not automatically non-resident or resident, do you have “sufficient ties” to make you resident?

The test distinguishes between:

• “Leavers” who are people who have been UK resident in any of the previous three tax years; and
• “Arrivers” who are people who have been resident in none of the previous three tax years.

A “day” for the purposes of the statutory residence test means a midnight.  That is, if you are in the UK at midnight you have a day’s presence ending with that midnight.

Are you automatically non-resident?

You will automatically be non-UK resident if:

• you are a “leaver” and spend no more than 15 days in the UK in the tax year; or
• you are an “arriver” and spend no more than 45 days in the UK in the tax year; or
• you work full time abroad and:
  • you spend no more than 90 days in the UK; and
  • you spend fewer than 31 days working in the UK.

“Full time work abroad” is a technical term but broadly requires working 35 hours a week on a regular basis with limited time spent in the UK.

If you are automatically non-resident, you need go no further and it does not matter what other connections you have with the UK.

If you are not automatically non-resident then…

Are you automatically UK resident?

You will automatically be resident in the UK if:

• you are in the UK for 183 days or more in the tax year;
• your only home is in the UK and you have visited that home on at least 30 days in the tax year. “Visit” means just that e.g. to pick up the post, it does not require you to be there at midnight;
• you have a home in the UK which you have visited on 30 days or more and you have an overseas home or homes but you have not visited any of the overseas homes on 30 or more days in the tax year;
• you work full time in the UK. Again this has a technical definition.

If you are automatically UK resident under the above test it does not matter what other connections you have or do not have with the UK.

The “sufficient ties test”

If you are neither automatically non-resident nor automatically UK resident you have to identify which, if any, of the following “ties” you have in the tax year.

You then combine the number of ties with your number of days in the UK to determine whether or not you are resident.

There are five specified ties. No other ties or connections are relevant.  The ties are as follows.

Work

Working in the UK on 40 or more days in the tax year.  “Work” can include meetings, travel, looking at emails, preparing for meetings and making phone calls.  A day’s work for this purpose means working for 3 hours or more.  A day can count even if you are not here at midnight.

 Family

If your spouse, civil partner, unmarried partner or child under the age of 18 is independently resident in the UK, you will have a family tie.

There are special rules for parents of children who are at school in the UK.

90 day tie

You will have a 90 day tie if you were present in the UK for more than 90 days in either of the previous two tax years.

Accommodation tie

You have accommodation which is available to you for 91 days or more in the tax year and you spend at least one night there.  This could be:

• owned or rented property; or
• a room in a relative’s house; or
• even a hotel room if you book a room for a sufficiently long period.

If the accommodation is at the house of a “close relative” you can spend up to 15 nights there in the tax year without the accommodation counting.

Country tie

APPLIES TO LEAVERS ONLY

You spend more days in the UK in the tax year than in any other country.

Having established how many ties you have, your residence status is then determined according to the following table.  This is the table for “Leavers”.  The days allowed for “Arrivers” are more generous.

For example:

• Charlie, a UK resident, decides to become non-resident and leaves the UK on 5 April.
• In the following tax year he visits the UK for 10 days only.
• In the next year, he visits the UK for 80 days. Charlie has a small flat in the UK where he stays when he is here.  He works on 42 of the days when he is in the UK.

Year 1

Charlie is automatically non-resident.

Year 2

Charlie is a three tie leaver as he has:

• an accommodation tie;
• a work tie; and
• a 90 day tie.

Charlie is resident in year 2.

If Charlie had only worked for 30 days in the UK in year 2, he would be a two tie leaver:

• accommodation tie; and
• 90 day tie.

In this case, he would be non-UK resident in year 2.

If Charlie is resident in year 2, a new three year period starts in which he is a “leaver”.

If Charlie was non-UK resident in years 1, 2 and 3, he would cease to be a “leaver” and would become an “arriver”.

The day counts for arrivers are more generous.

So if Charlie:

• was non-resident in years 1-3; and
• spent no more than 90 days in the UK in each year; and
• in year 4 Charlie spent 100 days in the UK, stayed in his flat and worked for 50 days,

he would have:

• an accommodation tie;
• a work tie;
• NO 90 day tie (as the 90 day tie refers to the previous two years).

As a two tie arriver he could spend up to 120 days in the UK in year 4 without becoming resident.

In year 5, Charlie would be a three tie arriver (as he would now have a 90 day tie).  He could spend a maximum of 90 days in the UK in year 5 without becoming resident.

Next steps

If you are planning to leave the UK, you will need detailed advice here and in the proposed country of residence in order to check what liabilities you might have in the UK and whether there is any pre-arrival planning you can carry out before becoming resident in your new country.  You will need to consider whether you are leaving the UK permanently or, at least, long term.  You will also need advice to make sure that you become and remain non-UK resident and to determine whether you are eligible for “split year” treatment.

If you are not returning to your home country, you will need to consider where you wish to become resident.  A number of countries have special regimes which apply to new residents and are designed to attract high net worth families to go and live there.

These countries include:

• Cyprus
• Israel
• Italy
• Jersey
• Malta
• Portugal
• Singapore
• Switzerland

If you would like to talk to us about your situation and how we can help you to make the right choices, get in touch with a member of the team on info@nqpltd.com.

These notes are a summary of the rules which do not cover all circumstances and do not constitute legal advice