Leaving the UK for tax purposes is a complex process. The introduction of the statutory residence test in 2013 has given more certainty to the process. However, the fact remains, that it is difficult to become non UK resident and, even after leaving, the reach of the UK tax regime can continue.
Statutory residence test (SRT)
The statutory residence test was introduced in 2013. The test comprises three separate elements or ‘tests’. If either of the ‘automatic’ tests are met, then a person will be automatically UK resident or automatically non UK resident. If neither of these tests are met, then the ‘sufficient ties’ test looks at certain connections or ‘ties’ that a person has with the UK. Amongst others, these may include, available accommodation, a family tie or UK workdays. The greater the number ties, will mean fewer UK days will be available before UK residency is met.
Split year treatment
In limited circumstances, if an individual leaves the UK part way through the tax year, the year can be split into a UK part and an overseas part. This has the potential to exclude some overseas income or gains from UK tax. For split year treatment to apply, the individual must meet the conditions set in either of the ‘Cases’ 1-3 in the legislation.
UK tax issues after UK tax residency ends
If an individual manages to successfully navigate the SRT and becomes non UK resident, it is important to remember this may not be the end of their UK tax obligations. Some of the situations where an ongoing UK tax issue may arise are highlighted below.
Temporary non-residence rules
The UK operates anti avoidance rules to restrict individuals leaving the UK for short periods in order to escape UK tax on chargeable gains and certain types of income. These ‘temporary non-residence rules’ can kick in if the following applies:
- they were UK resident in four or more of the seven tax years prior to the last tax year of UK residence; and
- the individual’s period of non-UK residence is a period of five years or less.
If the individual is temporarily non-resident, then any relevant chargeable gain or income realised during the period of non-residence could be liable to UK tax. The tax becomes due in the year UK residency resumes and could be an unwelcome surprise.
If an individual is tax resident in another jurisdiction, they may be able to benefit from provisions of a double tax treaty. This can be complex.
Income tax
An individual who is non UK resident, is only subject to UK income tax on UK source income. Further, some types of UK source income are considered ‘disregarded’ income and not subject to UK tax, unless an election is made otherwise. Helpfully, this does include UK source dividend income which can be received free of UK tax by a non-resident individual.
Capital gains tax
Historically, non UK residents would not have been liable to capital gains tax, even when those assets were situated in the UK. However, since 2015, non UK residence have been liable to CGT on gains from UK residential property sales. In 2019, the regime was extended to tax non residents on gains made on all types of direct and indirect land disposals (either commercial or residential).
CGT rates of up to 28% in respect of residential property and up to 20% in respect of non-residential property will apply on relevant chargeable gains.
Main home
Income Tax
If an individual retains a UK home, then that in itself does not create a tax issue. If that property is rented, then UK income tax will be due on the rental profits at rates of up to 45%. There is a requirement for basic rate tax (20%) to be withheld on rental payments, unless registration is made under the ‘non-resident landlord scheme’.
Capital Gains Tax
As there is a continuing interest in UK land, the property will be subject to the UK’s CGT regime even after residency has ended:
- A UK resident will be liable to CGT on the whole gain arising from a disposal of a property (after acquisition costs and capital expenditure)
- In contrast, a non UK resident will be subject to CGT (broadly speaking) on the gain since April 2015 or acquisition (whichever is later)
Principal Private Residence (PPR) relief
Non UK residents can still qualify for this relief, which can exempt up to 100% of the gain, where:
- The property has been occupied (or deemed occupied) as their main residence throughout the entire period of ownership; and
- for any period of ownership from 6 April 2015, none of the period of ownership falls within a ‘non-qualifying tax year’.
Non-qualifying years
Any tax year from the tax year 2015-16 onwards will be a non-qualifying tax year for an individual unless the individual meets one of the following conditions:
- they (or their spouse) were UK resident for the relevant tax year; or
- for non-resident individuals (or their spouse), they spent at least 90 days in the property in that tax year.
The next step
Given the complexities involved, it is important that individuals looking to leave the UK (or indeed return) take appropriate tax advice. UHY has offices across 100 countries and is well placed to assist with these matters. Please contact Tom Annat on t.annat@uhy-rossbrooke.com, or your usual UHY adviser if you would like to discuss your position.
