- In which country and how much income and dividend tax
you pay is very dependent upon your tax residency status.
In most cases, your tax residency status
will be pretty straightforward.
But one of the questions most probably on your lips is,
when am I non-UK tax resident?
In this video, we will cover, what does it mean
by tax residents, and is it the same as citizenship,
the Statutory Residence Tests, Sufficient Ties Test,
and, finally, a word of caution.
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So as an individual, there are essentially two key statuses
that you have at a national level.
Number one is your citizenship of a particular country.
So for example, here in the UK, if you hold
a British passport or are eligible for one,
then you would be a British citizen.
And as a citizen, you have certain rights:
statutory rights, legal rights, like the right to vote.
And number two is your tax residency.
This is where you are resident in the UK
for tax purposes and pay UK taxes.
In this video, we will cover, namely,
income and dividend tax on your earnings.
Now, being a British citizen and being UK tax resident
is the most common scenario for most of you out there.
However, you can be a British citizen
and non-UK tax resident at the same time,
or you can be a non British citizen and UK tax resident.
The two are mutually exclusive.
By being a UK tax resident, you are liable to pay
UK income tax and dividend tax on your worldwide earnings,
whether through employment, self-employment,
or dividends received from a company.
But the question is,
how is your tax residency actually determined?
Before we go on, meet Sonny,
who is a limited company business owner,
and he likes to travel a lot.
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So Sonny is born and bred in the UK
and has been in business for five years.
He holds a British passport
and is firmly a British citizen.
He's not married and has no children,
and owns his own UK residential property,
and has parents who also live and work here.
He has a UK resident limited company.
Now, Sonny normally pays himself a small director salary
of 12,570 pounds per year
and tops up the rest of his remuneration with dividends.
However, in the last tax year,
this is the 2020 to '21 tax year, let's assume.
Sonny moved away to sunny south of France,
no pun intended there,
and conducted his business from his laptop and phone.
Sonny continued to pay himself his monthly salary
and top up dividends whilst working in France.
So at the end of the tax year,
Sonny approached his accountant and tax advisor
as to how much tax he was due to pay on his salary
and dividends as his self-assessment return was due shortly.
The first thing his tax advisor needed to establish
was his tax residency in the last tax year.
And the first test his tax adviser would carry out
would be the Statutory Residence Test or SRT for short.
The Statutory Residence Test, SRT,
was introduced by the Finance Act of 2013
and applies from the 5th of April, 2013 onwards.
Now, there are two types of SRT:
firstly, the automatic overseas test
and then the automatic UK test.
So Sonny's tax advisors started
with the automatic overseas test as follows.
Number one, did Sonny spend fewer than 16 days
in the UK during the tax year 2020/21,
as Sonny was firmly UK tax resident
in the previous tax year?
Number two, did Sonny work sufficient hours overseas
in France, generally 35 hours or more per week on average,
without a significant break?
And during the tax year,
did Sonny spend fewer than 91 days in UK,
and did Sonny spend fewer than 31 days working in the UK?
All very complex, to be honest.
Essentially, Sonny needs to meet one or more of these tests
to be determined as automatically non-UK resident.
If he does not, then he's tax advisor needs
to move onto the automatic UK test as follows.
Number one, did Sonny spend 183 days or more
in the UK during the 2021 tax year?
Number two, does Sonny have a UK home,
and was he present in his home on 30 or more days
during the 2021 tax year?
And finally, did he work full-time in the UK
for any period of 365 days with no significant break?
Now, if Sonny meets any one of these automatic UK tests
and none of the automatic overseas tests,
then he will be determined as UK tax resident
for the '20 to '21 tax year.
But what if Sonny meets none of the automatic overseas test
or the automatic UK test?
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So the Sufficient Ties Test is known as the tie breaker
and can often sell inconclusive cases,
where none of the automatic overseas
or automatic UK tests are actually satisfied.
This test takes into account your ties to the UK as follows.
Number one is the family ties,
such as a spouse, common law partner,
or children under 18 who are UK resident.
Number two is the accommodation tie.
Do you have a place to live in the UK
for a continuous period of 91 days or more?
I mean, you don't have to necessarily own a property.
Even rental property could count towards that.
Number three is a work tie,
where you do more than three hours work a day in the UK
for a total of at least 40 days,
including employment and self-employment.
Number four, 90-day tie, where you have spent
more than 90 days in the UK
in either both or the previous tax years.
And finally, a country tie.
Was a UK the country in which you
were present for the greatest number of days
during the actual tax year in question?
These ties are then combined with days spent in the UK
to determine your residency status.
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After getting through all the steps required
to determine Sonny's tax residency,
his tax advisor echoed a word of caution.
The Statuary Test is not always conclusive
in determining your residence for tax purposes.
And it is quite possible that you may also be tax resident
in another country, in Sonny's case, France,
under the terms of their own residency tests.
If you are resident in another country,
then we will need to review the appropriate
Double Tax Treaty between the UK and France.
Double tax treaties contain tie breakers,
and these tie breakers will trump the UK's SRT tie breakers.
And there is also what is known as
the Split Residence Treatment,
something which will be covered in another video.
And finally, Sonny's tax advisor emphasize
how important record and evidence keeping is
in order to prove your tax residency status
in any particular year,
whether it be UK or non-UK.
He highlighted a prominent case
of Robert Gaines-Cooper v. HMRC [2011].
And despite meeting the SRT tests,
Robert Gaines-Cooper was still found to be UK tax resident
based on the Sufficient Ties Test
and has become a crucial piece of case law.
So in conclusion, each case needs to be assessed
on its merits, and, ultimately, it could end up
being the UK courts that decide the final outcome.
And as a result of this case,
HMRC revise their guidance on tax residency,
which you can view by clicking on the link
in the description box below.
I hope this video has helped you understand how UK tax
and non-tax residency is determined
and taking you one step closer to knowing your numbers.
As always, let me know in the comments
your thoughts on today's video
or if there are any topics you'd like us
to cover in the future.
Finally, be sure to like and subscribe
as this really does help us to get our content out there.
This is Tony Dhanjal for the Accounting and Tax Academy.
Thanks for tuning in.
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