UK Tax Residence (or Non-Domicile)?
UK Tax Residence Status
Your UK residence status affects whether you need to pay tax in the UK on your foreign income.
Non-residents only pay tax on their UK income – they do not pay UK tax on their foreign income.
Residents normally pay UK tax on all their income, whether it’s from the UK or abroad. But there are special rules for UK residents whose permanent home (‘domicile’) is abroad.
Please note that the UK tax year starts on the 6th of April and ends around the 5th of April the following year for a new tax year. To be classified as a UK taxpayer, you need to reside in the country for at least 6 months during the annual tax year.
UK Non-Domiciled Resident
UK residents who have their permanent home (‘domicile’) outside the UK may not have to pay UK tax on foreign income.
The same rules apply if you make any foreign capital gains, for example, you sell shares or a second home.
You do not pay UK tax on your foreign income or gains if both the following apply:
- they’re less than £2,000 in the tax year
- you do not bring them into the UK, for example by transferring them to a UK bank account
If this applies to you, you do not need to do anything.
Chapter 9 in HMRC’s guidance on “Residence, Domicile and the Remittance Basis” explains the rules for bringing income or gains to the UK.
If your income is £2,000 or more
You must report foreign income or gains of £2,000 or more, or any money that you bring to the UK in a Self-Assessment tax return.
You can either:
- pay UK tax on them – you may be able to claim it back.
- claim the ‘remittance Basis’
Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you:
- Lose tax-free allowances for Income Tax and Capital Gains Tax (some “dual residents” may keep them)
- Pay an annual charge if you’ve been a resident of the UK for a certain amount of time
You pay an annual charge of either:
- £30,000 if you’ve been here for at least 7 of the previous 9 tax years
- £60,000 for at least 12 of the previous 14 tax years
Claiming the remittance basis is complicated. You can:
- Contact HMRC
- get professional tax help, for example from a tax adviser
If you work in the UK and abroad
There are special rules if you work both in the UK and abroad.
You do not have to pay tax on foreign income or gains (even those you bring into the UK) if you get the ‘foreign workers’ exemption’.
You qualify if:
- your income from your overseas job is less than £10,000
- your other foreign income (such as bank interest) is less than £100
- all your foreign income has been subject to foreign tax (even if you did not have to pay, for example, because of a tax-free allowance)
- your combined UK and foreign income are within the band for basic rate Income Tax
- you do not need to fill in a tax return for any other reason
If you qualify, you do not need to do anything to claim.
Work out your residence status
Whether you’re a UK resident usually depends on how many days you spend in the UK in the tax year (6 April to 5 April the following year).
You’re automatically resident if either:
- you spent 183 or more days in the UK in the tax year
- your only home was in the UK – you must have owned, rented or lived in it for at least 91 days in total – and you spent at least 30 days there in the tax year
You’re automatically non-resident if either:
- you spent fewer than 16 days in the UK (or 46 days if you have not been classed as a UK resident for the 3 previous tax years)
- you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
RDR3 Statutory Residence Test (SRT)
The SRT was introduced by the HRMC authority and came into effect on the 6th of April 2013 to assess the residence status for the tax year. The Statuary Residence test is an essential tool to understand whether you are classified as a UK tax, as being defined as a UK taxpayer could mean that your foreign income is subject to UK tax legislation, and failure to declare correctly could lead to penalties and fines.
The SRT considers:
- the amount of time you spend and, where relevant, work in the UK
- the connections you have with the UK
Four key components of the statutory test:
- Automatic overseas tests
- Automatic UK tests
- Sufficient ties test
- Application of the SRT to deceased persons
- Split years
To understand which test(s) are required for you, please get in touch with our tax consultant experts to ensure that you fully understand the SRT test and your UK tax residence status.
Why is this important to understand your tax residence status?
Taxes can be complicated to understand if you do not have the right competency. For instance, if you are considering moving to the UK, deciding your tax residency status should be a priority, as there are significant differences in taxation for residents and non-residents in the UK.
Correct identification of your status in the United Kingdom will help you avoid double taxation, complications with tax return forms and overpaying your taxes and fees.
We understand that choosing a trusted accountant and tax advisor can be difficult and can take long hours of research.
At Immigration Tax Partners we are a team of chartered tax consultants and accountants based in London. With our 15 years of experience, we can provide efficient consultancy in many accounting and tax practices in both English and Russian. Our team is equipped with certifications by ACCA, CISI, and ATT, we take pride in affording personally tailored services to meet each client’s needs.
It’s important to be on time, especially when it comes to taxes.
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