A PROPER DEFINITION OF RESIDENCE AND NON-RESIDENCE
On 17th June, HMRC produced their eagerly anticipated Consultation Document introducing a statutory definition of tax residence in the UK
The document is not yet the law (it should take effect from 6th April 2012), but it shows that HMRC are making genuine efforts to listen to taxpayers who are completely confused and frustrated by the lack of clarity in the UK tax system.
The document does not override UK Double Taxation Treaties. If you are considered tax-resident in a country which has a Double Taxation Treaty with the UK, the provisions of the Treaty will always take precedence.
Withers Solicitors have produced a superb summary of the Consultation Document, which we are passing on to you in full. The major points are: -
1. If you leave the UK to work abroad full-time, and you spend less than 90 midnights in the UK in a tax year (of which not more than 20 can be working days), then you will be treated as non-UK resident for sure. You don’t need to worry about relocating your family, selling your house etc. I would describe this as generous.
2. If you leave the UK for any reason other than full-time work abroad, you will always be UK non-resident if you spend less than 10 midnights (and not 45 midnights as previously stated) here. You will always be UK resident if you spend more than 183 midnights here. If you spend somewhere between 10 (and not 45 midnights as previously stated) and 183 midnights, you must add up your point score of Residency Factors (family, employment, accommodation, residence pattern, and time elsewhere) to get the result.
3. Overseas workday relief for non-UK ordinarily resident clients will be much more difficult in future: a maximum of 2 tax years.
HMRC have not opened a single residence enquiry for any of our clients who have submitted P85s stating full-time employment abroad as the reason for UK departure. We were encouraged by this. We felt it showed the importance of choosing a country which had a solid Double Taxation Treaty with the UK. On the other hand, the Gaines-Cooper and Grace cases passing through the courts showed a very harsh interpretation of the rules. This made it very difficult for us to give any precise guidance for our clients.
The law on residence does not exist at present. All that exists is Legal Judgments. If the Consultation Document passes into law, it will cast a long shadow, affecting future Legal Judgments in a quasi-retrospective way, which would not be possible if any law existed now.
If you have any specific questions, please let us know.