Originally published on ExpatMoneyChannel, February 2012.
People leave the UK for a whole host of reasons; some to retire to a better climate and others to take up work abroad. The UK Government held a consultation on the introduction of a statutory test for residence in 2011. As a result, new legislation will be introduced to take effect from 6th April 2013. Those departing before the new rules take effect must fulfil the current tests for non-residence, established through Court decisions, and must also satisfy the new statutory test after 6th April 2013.
Under current rules, those who leave the UK indefinitely to live abroad for at least three years and those leaving permanently, i.e. with no intention of returning, will be treated as non UK residents the day after they depart. The UK tax year runs from 6th April each year and the normal rule is that you are subject to UK tax on your income and gains for all of a tax year if you are UK resident for any part of that tax year. However, those departing part way through a tax year can apply to HM Revenue & Customs for a concessionary split-year treatment so that they are only taxed as UK resident for that part of the year before they depart.
HMRC: Break from the UK
If you do not make a definite break from the UK, then HMRC could continue to treat you as UK resident. The quantity and quality of return visits to the UK matter. Return visits must not exceed 183 days in any tax year and must not exceed 91 days in any year over a rolling four year average. Even where return visits are within these limits, the regularity and purpose of visits could enable HMRC to treat you as continuing to be UK resident.
Contract of employment
Where you leave the UK to work abroad under a contract of employment you are treated as non resident if the contract of employment lasts for at least a complete tax year. In addition, any return visits to the UK must again total less than 183 days in any tax year and average less than 91 days each tax year (with the average being taken over the period of absence up to a maximum of four years).
P86 Form
When departing the UK, form P86 should be filed with HMRC. This form discloses any continuing UK sources of income so that HMRC can determine your reporting requirements while non-resident. Where you leave the UK part way through a tax year and the concessionary split-year treatment applies, a tax repayment claim may arise depending on your circumstances.
Pensions
If you are non-UK resident and in receipt of any UK pension, including State Pension, then you will continue to pay UK income tax on that pension. If the country you are moving to has a double taxation treaty with the UK, you may be able to apply for relief from UK tax. The relief available will depend on the terms of the double tax treaty. Where UK income tax has already been deducted from earlier pension payments, a tax repayment claim may be possible under the double tax treaties.
Rent
If you receive rent from UK property after you are non-resident then special rules apply. The tenant should deduct basic rate tax from the rent and pay that tax to HMRC; the net rent should be paid to the landlord. This could result in a tax repayment claim being necessary on any allowable expenses associated with the property. Alternatively, an agent appointed under the non-resident landlord scheme can remit the tax to HMRC after deduction of expenses – simplifying administration for both landlord and tenant.
When the draft legislation for the new statutory residence test is published, expected later this year, those who are already non-resident should review their position to ensure they remain non-resident under the new rules. The new rules should simplify the test for determining residence. They may also assist in highlighting where the quantity and quality of return visits puts people at risk of continuing to be UK resident for tax purposes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
