Donald Simpson, Partner with legal and wealth management specialist firm Turcan Connell, explains what you need to know about retaining a UK home for return visits or spending longer periods back in the UK without jeopardizing your non-UK resident status for tax purposes.
The rules on UK tax residence now appear in the statutory residence test which applies from 6th April 2013. Under the rules, it is possible to keep a home in the UK and still be classed as non-UK resident subject to meeting various conditions.
Expats who fulfil the relevant criteria in the rules for working full time overseas, or spend less than 46 days in the UK each tax year (or 16 days if they were UK resident in any of the three preceding tax years) are automatically non-UK resident regardless of retaining a home in the UK. Expats dividing their time between their overseas home and the UK may wish to spend more time at their UK home than these automatic tests for being non-UK resident permit. To avoid being automatically UK resident, they must not spend more than 183 days in the UK in a tax year, or indeed work full time in the UK. Where these limits are observed, they then need to consider how many 'ties' to the UK they have, to determine how many days they could spend in the UK before being tax resident. Both the ties and the permitted days are set out in the rules.
However, where a home in the UK is retained there are two situations which override the days permitted by the ties and could result in an expat being automatically UK resident regardless of the number of days they spend in the UK. Both situations are outlined below.
What is a home?
The rules set out that a home is a building, vehicle, vessel or structure of any kind used as a home with a degree of permanence or stability. A home can be rented rather than owned. Where an expat rents out their former UK home it would cease to be a home, but could be a home if the tenant vacates and it is available for the expat to use. It is possible to have more than one home, either in the UK, overseas, or in the UK and overseas.
A property used purely as a holiday home is not a home under the rules. Determining if the former family home which is used on visits back to the UK qualifies as a holiday home will depend on the extent and nature of its use. A holiday home would likely be available accommodation, so could still impact on the number of permitted days in the UK if it constituted a tie to the UK.
Retaining a home in the UK but having no other home
The first situation to watch out for is where a person has a home in the UK but has no home overseas. This could arise as a result of an expat selling their home abroad and waiting on a replacement purchase to complete. Where there is any period of 91 consecutive days in which they have a UK home but no home overseas, the expat will automatically be UK tax resident for any tax year during which they spend 30 days at their UK home. This will apply even if they spend no time at their UK home while they were between overseas homes, for example if they used the time to travel or stayed with friends. The 91 day period does not need to fall entirely into the actual tax year for this to apply, and it is sufficient for only 30 days out of the 91 to fall into the tax year for this to bite.
Homes in the UK and overseas
Expats with a home in the UK and at least one other home overseas also need to pay careful attention to the detail of the rules. They must ensure that where there is any period of 91 consecutive days in which they have at least one home in the UK and one home overseas, then if they spend at least 30 days at that UK home in a tax year they must also spend at least 30 days at their overseas home in that tax year or else they would automatically be UK tax resident. Where an expat has only one overseas home, then it should be straightforward to ensure they spend at least 30 days there each tax year. However, where an expat has more than one overseas home, they would need to spend at least 30 days at one of those overseas homes. Where an overseas property was in reality a holiday home then this 30 day minimum stay requirement would not apply to it.
Homes and accommodation
By having a home in the UK, including a holiday home, for at least 91 consecutive days an expat would have an accommodation tie to the UK if they spent at least one night there during the tax year. This would be relevant if the automatic tests are inconclusive in determining if a person is automatically UK resident or non-UK resident. An accommodation tie is not uncommon for expats, and the number of days in which they can be in the UK without becoming UK tax resident will depend on the number of other ties to the UK, namely, the family tie; the work tie; the 90-day tie, and the country tie.
Returning to the UK part way through a tax year
Expats returning to the UK part way through a tax year must fall within an accepted case to be treated as UK tax resident only from their return to the UK. Such split year treatment can be desirable where significant income or gains arise in the part of the tax year before returning to the UK. The accepted cases for split year treatment to apply are starting to have a home in the UK only; starting full time work in the UK; ceasing full time work overseas; returning to the UK when your partner ceases full time work overseas, or starting to have a home in the UK.
Expats who do not work may encounter some difficulty falling within these accepted cases. For example, if they have homes in the UK and overseas the provisions for splitting the tax year by starting to have a home in the UK could not apply. For many it may be necessary to cease to have a home overseas so that they would fall within the rules for starting to have a home in the UK only. This result could be achieved by renting out the overseas home to prevent it being available as a home.
Retaining a UK home and making regular visits to the UK home while being non-UK tax resident is possible under the statutory residence test. However, the rules must be carefully followed to avoid accidentally becoming UK tax resident. This article provides a summary of the rules only, and advice should be taken on how the detailed provisions of the statutory residence test apply in individual circumstances.
This article appeared on Expat Money Channel
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