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Knowing your tax residence status is super important if you work abroad, but still have some ties to the UK. For instance, if you left the UK recently, returned after an absence, or have residency here and visit often.
This status indicates whether you’ll pay UK taxes on any foreign income you make. Failing to declare or pay tax on overseas income could lead to penalties and a nasty fine – even if you thought you wouldn’t need to!
The ‘statutory residence test’ was introduced by HMRC to help individuals with a connection to the UK determine their status for paying tax. We’ll discuss what your residency status means, and how you can take the test to find out whether your foreign income is subject to UK taxes.
When it comes to your tax status, you’ll fall into two categories; either a UK resident, or a non-UK resident.
Finding out which one you are largely depends on how many days you spend in the UK during the tax year in question.
You’re classed as a UK resident if you:
If you don’t meet these conditions (both of them), you’ll be considered non-resident in the UK for tax purposes.
You’ll be classed as a UK resident if you fit the following criteria when you take the test:
If you’re considered non-resident for tax purposes, you won’t need to pay any UK tax on your foreign income.
This is likely the case if you:
If you don’t meet either of the automatic UK or overseas tests, your residency will depend on the number of UK ties you have. This is basically how many connections you have in the UK (family, work, accommodation ties, etc). This is determined via a ‘sufficient ties test.’
If you’re a UK resident, you’ll pay UK taxes on your worldwide income unless your domicile (your permanent home) is considered to be abroad.
You’ll pay UK tax on income such as:
Your tax residency status can change from one year to the next, depending on your situation. For example, your job could change, meaning you spend more (or less) time in the UK. Your ‘ties’ to the UK could change, for instance your family move to the UK, or you get married, separate, or have children.
It’s important you check your residency status each tax year, especially if something has changed since you last checked.
If you’ve already paid tax on your foreign income, you can claim Foreign Tax Credit relief when you report your overseas income on your Self Assessment tax return. The relief you receive depends on the country your income has come from, and it’s double-taxation agreement with the UK. If there isn’t an agreement in place, you’ll usually still receive relief, unless the foreign tax doesn’t correspond to either UK Income Tax or Capital Gains Tax.
You can apply for tax relief before you get taxed on any foreign income, rather than getting taxed twice!
HMRC’s online tool should make the process of working out whether you’re a UK resident or not much more straightforward. You’ll need to select the tax year you’re referring to, and answer a range of questions, such as how many days you’ve spent in the UK that tax year, (and how many of those days you worked). Other questions include whether you had a home in the UK during this period, and how long you spent in that home.
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