Breaking UK residence - what to watch out for?

If you are planning to leave the UK and live abroad, you may be wondering how this will affect your tax situation. In particular, you may want to know how to stop being UK tax resident and what are the consequences of returning to the UK too early. 

There are a number of tax benefits available to new arrivers in the UK but the definition of a new arriver depends on the benefit you are considering. In order for those benefits to be reset properly, you need to have stayed outside of the UK for a sufficiently long period depends on the given benefit. 

In this article, we will explain the main rules and concepts that you need to be aware of, such as the statutory residence test, the overseas workday relief, the remittance basis and the temporary non-residence rules. We will also give you some practical tips on how to plan your departure and potential return in a tax-efficient manner. 

The Statutory Residence Test 

The first thing you need to know is how to determine your UK residence status for tax purposes. This is done by applying the statutory residence test (SRT), which is a set of rules that came into effect from 6 April 2013. The SRT consists of three parts: an automatic non-resident test, an automatic resident test and a sufficient ties test. You need to consider them in that order and stop as soon as you meet one of them. 

The automatic non-resident test 

You will be automatically non-resident for a tax year if you meet any of the following conditions: 

• You spent less than 16 days in the UK in that tax year and you were UK resident for one or more of the previous three tax years
• You spent less than 46 days in the UK in that tax year and you were not UK resident for any of the previous three tax years
• You worked abroad full-time (averaging at least 35 hours a week) for that tax year, without any significant breaks (more than 30 days), and you spent less than 91 days in the UK, of which no more than 30 were spent working 

If none of these apply, you need to move on to the automatic resident test. 

The automatic resident test 

You will be automatically resident for a tax year if you meet any of the following conditions: 

• You spent 183 days or more in the UK in that tax year
• You had a home in the UK for at least 91 consecutive days (including at least 30 days in that tax year), and either you had no home overseas or you spent less than 30 days at each of your overseas homes in that tax year
• You worked full-time in the UK for at least 365 days (including at least one day in that tax year), without any significant breaks, and more than 75% of your working days were in the UK 

If none of these conditions apply, you need to move on to the sufficient ties test. 

Nominating income when paying the RBC

For non-domiciled residents (RND) who have been in the UK for more than 7 out of the 9 previous tax years, using the remittance basis (i.e. choosing to be taxed on UK income only as long as it's not remitted into the UK) has a cost beyond the loss of personal allowances. It's called the remittance basis charge (RBC) and it's currently £30,000 if you have been in the UK for 7 out of the previous 9 tax years or £50,000 if you have been in the UK for 12 out of the previous 14 tax years.

What is less known is that the RBC is actually a tax and therefore if you decide to pay that charge, you also need to nominate the corresponding income. You would think that doing so allows you to bring that taxed income back to the UK without further cost. Unfortunately, HMRC designed the rules so that it becomes impossible to take a credit for the remittance basis charge until and unless all other non-UK income and gains are remitted to the UK. As this is rather unlikely, the RBC is essentially an additional cost of electing to be taxed on the remittance basis.