Personal taxation

An individual’s residence status for the purposes of taxation in the UK...

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...cile as a determining factor in establishing liability to inheritance tax.

In each tax year, the residence status of each individual has to be established. A statutory test to achieve this was introduced from 6 April 2013 and consists of three parts.

Automatically not resident in the UK

The 'automatic overseas' tests determine non-UK residency. Always treated as non-resident will be:

Individuals who are in the UK for fewer than 16 days in the tax year

Individuals who have not been resident in any of the three previous tax years and are resident for less than 46 days in the current tax year

Individuals who have left the UK to carry out full-time work (35 hours per week if employed or as a self-employed individual), if they are in the UK for fewer than 91 days in the tax year and fewer than 31 of these days are spent working in the UK (a working day is classed as a period longer than three hours)

Automatically resident in the UK

If an individual does not meet any of the overseas tests, they will be considered UK resident if:

They are in the UK for 183 days or more in the tax year

Their only home is in the UK (i.e they have a UK home for at least 91 consecutive days and live in it for at least 30 days in the tax year)

They carry out full time work in the UK

For example, Beryl, who is now retired, lives in her villa in Portugal from October to February each year and returns to the UK from March to September. ...

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...;deeming rule' where:

They have three or more ties for the tax year

They have been present in the UK on more than 30 days without being present at midnight in the tax year (known as qualifying days)

They have been resident in one or more of the three previous tax years

If all three conditions are met, then the deeming rule means that after the first 30 qualifying days, all subsequent qualifying days within the tax year will be treated as days of presence.

For example, Mary was resident in the UK until 2025/26. For 2025/26 she does not meet any of the automatic tests but has four UK ties. During the tax year she spent 40 days in the UK where she was present at midnight and also present on a further 50 days. Mary is a leaver and without the deeming rule she would be treated as if she had spent between 16 and 45 days in the UK and would not be UK resident. However, she meets the conditions for the deeming rule to apply and so she must count an additional 20 days (the first 30 qualifying days are excluded). She is therefore treated as spending between 46 and 90 days in the UK and, with the four UK ties, is a UK resident for 2025/26.

If an individual who is treated as UK resident goes abroad to take up a contract of employment that will last for at least a complete tax year, how will they be treated in relation to residence status?

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The liability to tax of most UK resident individuals is relatively straightforward.

Income tax

Wh...

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...al gains tax purposes where the individual meets the definition of a qualifying new resident (see below).

Income Tax

Employment income for duties performed outside of the UK is not liable for income tax. Income for duties in the UK will be liable for income tax unless the duties are incidental to those performed overseas. Self-employed individuals are liable for income tax only on profits of a trade or profession carried on in the UK.

There is also no income tax liability on overseas investment income and all income from British Government securities. Income from UK investments is generally taxable, but a non-resident’s liability is limited to the amount of tax that would have been due on their income if the ...

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... four out of the seven tax years immediately preceding their year of departure and became non-resident for a period of less than five tax years. Any gains made in the year that someone leaves the UK are taxable in that tax year and any future gains will become taxable in the year they resume residence. Any gains made on the disposal of assets acquired after becoming non-resident, and in years of non-residence, are fully exempt.

When would an individual who is not resident  in the UK not be liable for income tax on income from employment duties performed in the UK?

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With effect from 6 April 2025, new arrivals to the UK who were not UK resident for any of the previous ten tax years are classed as qualifying new residents. They may therefore apply for special tax treatment under the newly established foreign income and gains (FIG) regime.

A qualifying new resident may benefit from this tax treatment for a maximum of four tax years following their arrival in the UK. A separate claim must be made for each tax year by means of a self-assessment tax return. Claims can only be made for years in which they were actually resident in the UK. Where the individual leaves the UK temporarily and returns then they may claim for any remaining balance of the four years.

Claims may be made in respect of foreign income, foreign capital gains or both. The amount of income and/or gains for which relief is being claimed must be quantified at the time of making the claim. T...

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...les were put in place when the new regime was introduced. Qualifying new residents who arrived in 2022/23, 2023/24 or 2024/25 can now claim for the balance of their first four tax years in the UK.

Rebasing relief

If a UK-resident individual had previously elected to use the remittance basis, they can use rebasing relief to rebase foreign assets for CGT purposes to their market value on 5 April 2017. This is provided they were not UK domiciled or deemed domiciled prior to 6 April 2025.

Temporary repatriation

If an individual previously opted to use the remittance basis then they can use what is known as the temporary repatriation facility to remit overseas income and gains to the UK at a flat rate tax charge. This rate is 12% and the facility can be used until the end of the 2027/28 tax year.

Any remittance basis charge previously paid cannot be offset against the new tax charge.

With effect from April 2025, an individual’s liability to IHT is subject to the long-term residency test, which replaced the previous domicile-based regime. An individual is considered long-term resident where they have been UK resident in at least 10 of the previous 20 tax years.

Where the individual is long-term resident, they will be subject to IHT on all of their worldwide assets;

For non-long-term residents, IHT is only levied on assets situated in the UK. There are some limited exceptions, such as gilts acquired after 5 April. These are usually treated as excluded property.

Where the individual is younger than age 20 then the test will be met if they have been UK resident for 50% or more of the years since their birth.

Ceasing to be long-term resident

Individuals who have been long-term resident but leave the UK are then required to be non-resident for a minimum number of tax years before they are considered as non-long-term resident. The required number of years is as follows:

Number of years’ residence in the last 20 tax years

Number of years’ non-residence required to become non-LTR

9 or less

N/A – never long-term resident

10-13

3

14

4

15

5

16

6

17

7

18

8

19

9

20

10

The individual remains subject to UK IHT on all their worldwide assets pending achievement of the required number of qualifying years.

 

Each individual is responsible for determining their own residence status and calculating their appropriate tax liability ...

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...ms for the FIG regime and for overseas workday relief must also be made on an individual's self-assessment tax return.

To avoid the situation where an individual may have income or gains from a source in one country while being resident in another, and therefore being liable for tax in both countries, the UK has entered into double tax agreements with over 150 countries around the world. The full list of these can be found on the HMRC website.

Residence status

An individual may be regarded as a UK resident and also a resident of another country at the same time, which may result in an element of double taxation. Most double taxation agreements have a process for establishing a single residence status.

Non-residents

A resident of a country which has a double taxation agreement with the UK may be able to claim a total or partial exemption from UK tax on some types of income from UK sources and capital gains tax on the disposal of a...

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... many countries charge a form of capital gains tax on local property held by non-residents. If a double taxation agreement exists, a credit will usually be given against the UK tax for any foreign tax paid. This could eliminate the UK liability if the foreign tax is higher, but any excess cannot be repaid.

Inheritance tax

Many double taxation agreements include provisions to prevent a double tax charge on the transfer of assets on death. A unilateral agreement also exists which allows HMRC to give a credit against any foreign tax paid on transfers of foreign property that have had a tax imposed on them similar to inheritance tax.

Explain the tax liability of a non-UK resident, who is eligible, through a double taxation agreement, to receive a tax credit with a dividend payment.

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There are special rules which apply to trusts set up by individuals who are neither resident nor long-term resident in the UK. However, these are complex and subject to anti-avoidance legislation.

Income tax

An overseas trust can become subject to UK income tax if it has a UK resident trustee

If there are no UK trustees, it is not subject to UK income tax, but anti-avoidance legislation can attribute the trust income to the settlor where they or certain connected parties can benefit...

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...p>Inheritance tax

A transfer of property by a UK resident settlor into an overseas trust is a transfer of value for IHT purposes with the associated tax consequences.

It was previously possible to guard against this by settling an excluded property trust. This is no longer possible as assets from such trusts will be brought within the scope of UK IHT if the settlor becomes UK resident.

How would an overseas trust be treated in relation to income tax?

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Chapter revision test. Your results and 3 hours of estimated study time will be added to your CPD certificate on completion. If you retake the test then additional CPD time for the test will be added.

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