Who is liable to UK taxes?

PETER HARRUP of PKF explains Government proposals to simplify rules on the taxation of those who spend part of their time overseas

THE tax issues surrounding individuals who spend only part of their time in the UK and for foreign nationals have become a political hot potato.

A spaghetti bowl of rules has built up through legal cases over many years but now, in an attempt to unwind them and give individuals certainty on their tax position, the Government has set out proposals for statutory tests to determine an individual’s tax residence status.

The tests are to apply from 2012/13 onwards but individuals will need to consider their position for the current year as it may be taken into account next year.

For long-term residents or non-residents the good news is that the proposed rules are relatively simple. Unfortunately, for individuals leaving or arriving in the UK, certainty comes at the price of using a grid system combining the number days spent in the UK with a number of “connection factors”, which reflect past case law principles used to establish the strength of an individual’s connection with the UK.

The factors include: where your immediate family live; whether or not you have a home in the UK; if you work here; and how much time you spent here in the prior two years.

As now, spending more than 183 or even 90 days in the UK in a tax year could have a significant impact on your tax status.

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The tests applied will be different depending on the number of days spent in the UK in a year and whether or not an individual is leaving or arriving in the UK. For example, an individual coming to the UK for the first time will never be considered resident here if he or she spends fewer than 45 days in the UK. However, an individual leaving the UK after being resident here in as little as one of the prior three years will continue to be resident in a tax year in which he or she spends just 10 days here.

Further proposals, on the taxation of non-UK domiciled individuals, would relax some of the rules introduced in 2008. The “remit to invest” proposals will allow non-UK domiciled individuals to bring funds onshore to invest in a wide range of UK companies without triggering a tax charge, on condition that, on exit from any given investment, funds are expatriated within two weeks.

However, for longer term residents – those here for 12 years or more in the past 14 years – the annual charge for them to be taxed in the UK only on the funds brought (remitted) here will increase to �50,000.

A welcome exemption from Capital Gains Tax for gains or losses on foreign currency bank accounts is proposed and some simplification measures are also suggested relating to “nominated accounts” and for earnings paid into foreign bank accounts.

Although there may be changes before the new rules take effect, anyone who thinks they may be affected should seek expert advice now.