More and more often, I hear British expats talk about splitting their retirement across two countries.
Usually it’s the UK, and somewhere else with a nicer climate.
After a decade living abroad, I completely understand the reluctance to spend winters in the UK’s cold damp weather.
But managing your tax residence can require some careful attention – especially with the potential risk of being tax resident in multiple countries at once.
In this article we’ll cover how the UK Statutory Residence Test determines how long you can stay in the UK, without becoming a tax resident.
HMRC have three separate tests to determine whether you’re a UK tax resident or not.
- The Automatic Overseas Test
- The Automatic UK Test
- The Sufficient Ties Test
And your tax residence is decided by working through them, in that order.
The Automatic UK & Automatic Overseas Tests
The first of these is the Automatic Overseas Test, you’ll be automatically non-UK resident, if any of the following apply:
- You weren’t resident in the UK for the whole of the previous 3 tax years, and spend less than 46 days in the UK in the current tax year.
- You were resident in the UK for 1 of the previous 3 tax years, and spend less than 16 days in the UK.
- You leave the UK to work full-time overseas, and spend less than 91 days in the UK, and less than 31 days working in the UK.
Most retirees I speak to want to spend a few months other summer in the UK, so they fail these tests.
The next of HMRC’s tests is the Automatic UK Test, you’ll be UK resident if any of the following apply:
- You spend more than 182 days in the UK in the current tax year.
- All your homes are in the UK, and you spend 30 days or more in that home (a home can include rented accommodation).
- You work sufficient hours in the UK.
So it’s key you spend less than 182 days in the UK, if you want to keep your tax-residence elsewhere. But the exact amount of days you can spend in the UK will most likely be lower than 182 days.
If like most you haven’t met any of the above tests, it comes down to the Sufficient Ties Test.
The Sufficient Ties Test
This looks at how many ties you have to the UK, and how many days you’ve spent in the UK, to determine if you’re a UK tax resident.
For inbound expats (those not resident in the UK thought all of the last 3 tax years) there are 4 potential ties:
- UK Resident Family – Either a spouse, civil partner, or minor child, who is UK tax resident.
- Substantive UK Employment – For 40 or more days in the tax year.
- Accessible UK Accommodation – This must be stayed in for at least 1 night of the year. It could include your own home, or the home of a close relative like a parent, grandparent, sibling, adult child, or adult grandchild. Most expats have this tie.
- A 90 Day Tie – If you spend more than 90 days in the UK in either of the previous 2 tax years.
For outbound expats (those resident in the UK in 1 or more of the previous 3 tax years) there is 1 extra tie to consider:
- A Country Tie – If you were present in the UK more than any other single country
Once you’ve established how many UK Ties you have, you can then discover how many days you can spend in the UK, before becoming tax resident.
For inbound expats, the chart below explains it.
Let’s look at a quick example:
Ryan & Sarah have lived in the UAE for the last 10 years.
As they’re now approaching retirement, they plan to split their time between the UK and Dubai.
They aren’t employed in the UK, nor does their overseas employment require them to work in the UK – so they have no UK Employment Tie.
They have a home in the UK and also in Dubai – this creates a UK Accommodation Tie, if they stay in it for a single night.
Their children are grown up – so they have no UK Family Tie unless one of them becomes tax resident at a later date.
In the last tax year, they spent 4 weeks in the UK over summer – so they have no 90 Day Tie.
This means initially they have 1 UK tie.
So next year they could spend 182 days in the UK and still remain non-UK resident.
But this would then create a second tie after that year – a 90 Day Tie – which means in the following two years, they could only spend 120 days in the UK.
Otherwise they risk being considered UK tax residents.
If at any point they become UK tax resident – for the next 2 years they’ll be treated as outbound expats – with an additional tie to consider.
This effectively reduces the days they could have spent in the UK, as inbound expats, by one bracket.
Before as inbound expats, if they had 2 UK ties they could spend 120 days in the UK, but now they can only spend 90 days in the UK as outbound expats.
Of course, that’s only for 2 years, after which they’d continue to be teated as inbound expats.
What happens if you’re tax resident in two countries?
Most countries have double-taxation agreements to stop you being taxed twice.
However, this isn’t always as straightforward as it sounds.
It’s common for expats to accumulate investments, property, pensions and bank accounts in different jurisdictions.
The double tax treaty will cover property in Country A, or Country B, but it won’t consider property in a third country.
Often this comes down to a tie breaker, or relief given on tax already paid.
But you’ll likely need to consult tax advisers in both countries to determine the correct outcome – something likely to be both complex and expensive.
The easy solution is to maintain tax residence on jurisdiction, or ensure any additional jurisdictions only tax you on a territorial (not worldwide) basis.
