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International Travelers – Determining Residency

If a person (any individual / company) meets the criteria of UK residency, then the person has to pay UK
tax on income and capital gains.

How to find UK residency status?

A statutory test of residence is used to determine a person’s residence status each tax year as follows:

Auto Non-Residency Test the following people will automatically be treated as non-UK resident:
1. A person who is in the UK for less than 16 days during a tax year.
2. A person who is in the UK for less than 46 days during a tax year, and who has not been resident
during the three previous tax years.
3. A person who works full-time overseas, subject to them not being in the UK for more than 90
days during a tax year.

- If the person meeting any of the point 1, 2 and 3  then  non - UK Resident
- But, if the person not meeting any of the point 1, 2 and 3; then check for

Auto Residency Test The following people will automatically be treated as UK-resident:
A. A person who is in the UK for 183 days or more during a tax year
B. A person whose only home is in the UK
C. A person who carries out full time work in the UK

- If the person meeting any of the point A, B and C  then  non - UK Resident
- If person does not meet any of the Auto-non-residency and Auto-residency test, than residency
would be determined with reference to the ties test

 Ties Test
a. Having close family (a spouse/civil partner or minor child) in the UK.
b. Having a house in the UK which is made use of during the tax year.
c. Doing substantive work in the UK.
d. Being in the UK for more than 90 days during either of the two previous tax years.
e. Spending more time in the UK than in any other country in the tax year.

Days in UK Previously resident Not previously resident

Less than 16 Automatically not resident Automatically not resident
16 to 45 Resident if 4 UK ties (or more) Automatically not resident
46 to 90 Resident if 3 UK ties (or more) Resident if 4 UK ties
91 to 120 Resident if 2 UK ties (or more) Resident if 3 UK ties (or more)
121 to 182 Resident if 1 UK tie (or more) Resident if 2 UK ties (or more)
183 or more Automatically resident Automatically resident
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Question 1:
A. James is in the UK for 40 days during the tax year 2021–22. He has not previously been resident
in the UK.

B. Kate is in the UK for 60 days during the tax year 2021–22. Her only home is in the UK.

C. Maggie has always been resident in the UK, being in the UK for more than 300 days each tax
year. On 6 April 2021 Maggie purchased an overseas apartment where she lived for most of the
tax year 2021–22. She also has a house in the UK where her husband and children live. During
the tax year 2021–22 Maggie visited the UK for a total of 80 days, staying in her UK house.

D. Nigel has not previously been resident in the UK, being in the UK for less than 20 days each tax
year. On 6 April 2021 he purchased a house in the UK, and during the tax year 2021–22 stayed in
the UK for a total of 160 days. Nigel also has an overseas house which was where he stayed for
the remainder of the tax year 2021–22.

Question 2:
Up to and including the tax year 2018–19, Danh was always automatically treated as not resident in the
UK, spending fewer than 46 days in the UK each year. Danh knows that for the tax year 2021-22, he will
automatically be treated as resident in the UK, but is unsure of his residence status for the tax years
2019–20 and 2020–21. For these two tax years, Danh was neither automatically not resident in the UK
nor automatically resident. For both of these tax years, Danh spent 100 days in the UK, with the
remainder of each tax year spent in the same overseas country. Throughout both tax years, Danh had a
property in the UK and stayed there on the 100 days which he spent in the UK. Danh also did substantive
work in the UK during both tax years. He does not have any close family in the UK.
In relation to the above scenario, which of the following is correct?
2019–20 2020–21
A. UK Resident UK resident
B. UK Resident Non-UK resident
C. Non-UK Resident UK resident
D. Non-UK Resident Non-UK resident
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UK Resident + UK Domiciled (PR – Permanent Residency)

 UK Income Tax  on Worldwide Income
 UK CGT  on Worldwide Gains
 UK IHT  on Worldwide Assets

UK Source Income  Always subject to UK Income Tax

UK Assets  Always subject to UK IHT

Foreign Assets  Subject to UK IHT if person meets UK Domicile Status

Foreign Income Subject to UK Income Tax or Not?

UK IT on Overseas Investment Income and Trading Income

On arising / accrual basis

Question 3:
Adele came to the UK in 2020/21 but did not become resident until 2021/22. She is domiciled outside
the UK. Adele has employment income in respect of her job in the UK and interest arising on an overseas
bank account of £4,000 per year. Adele’s liability to UK IT is?
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Liability to UK CGT:

Only For CGT Purposes

Let say, for Tax Avoidance, I accumulated multiple assets and sold them in 10 days’ time and spend rest
of the 355 days outside UK, and hence classified as Non-UK Resident and avoided the UK CGT.

To address these kinds of tax avoidances, tax authorities introduced the concept of Temporary Non-
Resident.

What is Temporary Non-Resident?

Any person who spend less than 4 out of 7 years (any years, not consecutive) outside UK

or

Any person who spend less than 5 years (consecutive) outside UK

If the person is Temporary Non-Resident, but for UK CGT, he is considered as UK Resident

If any asset purchased after leaving the UK and disposed before coming back to UK  NO UK CGT

Example:

A person purchased the asset in 2019 and on 30 June 2021, he left the UK and disposed off the asset on
31 December 2022. He comes back to UK on 30 September 2023.

Is there any UK CGT on the asset?

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Tax Rates & Allowances?

CGT will be based on Tax Rates & Allowances applicable at time of disposal.

When it will be paid?

CGT will be due on 31 January after FY of arrival in UK.

Question 4:

State the circumstances in which an individual may be regarded as a temporary non-resident for the
purposes of CGT.

Question 5:

Eider had always been resident and domiciled in the UK until she moved to the country of Twitcheria for
a three-year period on 1 May 2022 at which point she ceased to be UK resident. In 2024 Eider will sell
two buildings situated in Twitcheria.

Property 1: Acquired in August 2017

Property 2: Acquired in July 2023

Required: Explain the UK CGT implications of the disposal of the two properties
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Most UK Assets / Gains:

All assets / gains covered, except of:

- Assets, used in UK Trade (Business Assets)

- UK Residential Property Disposal

An individual who is non-UK resident is still subject to UK CGT on disposals of:

 UK assets used in a trade based in the UK, and

 Disposals of UK property

Non-UK resident individuals - subject to CGT on the disposal of UK property:

 Disposals of UK residential property after 5 April 2015 (Only gains (or losses) arising after 5 April
2015 are within the scope of CGT).

 PPR relief will be available as usual

 For periods of non-occupation if the individual (or their spouse/civil partner):

 stayed in the property for a total of at least 90 nights in the tax year - treat the whole tax
year as a period of occupation
 did not stay in the property for at least 90 nights in the tax year - treat the whole tax year
as a period of non-occupation.

 If the property is let out, letting relief will be available as usual

 Disposals of UK non-residential property after 5 April 2019

 Non-residential property purchased after 5 April 2019: calculate gain (or loss) before reliefs in
the normal way.

 Non-residential property purchased before 5 April 2019:

 only the gain for the period after 5 April 2019 is taxable
 therefore, use MV at that date as the deemed cost.
 Alternatively, by election, can calculate total gain/loss based on cost
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A loss on disposal of UK property (residential or non-residential) by a non-UK resident individual can

only be offset against other UK property gains of:

 the same tax year, or

 future tax years.

For exam purposes, properties will either be wholly residential or wholly non-residential throughout
ownership.

Question 6:

Bosun has always been UK resident and domiciled. On 1 June 2021 he left the UK and became non-
resident. His intention was to remain outside of the UK for four years. In 2022/23 Bosun sold some
shares (acquired in 2012), and a painting (acquired in 2022).

Bosun’s liability to UK CGT following his departure from the UK is?

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The Remittance Basis:

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Question 7: (Choosing remittance basis)

Nathan has been resident in the UK for tax purposes since 2012/13 but is not UK domiciled.

In 2021/22, he has the following income:

- UK trading income £10,000

- Non-UK trading income £90,000

He remits £10,000 of his non-UK trading income into the UK.

Required: You are required to advise Nathan whether or not he should claim the remittance basis in
2021/22
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Question 8: (Exam Question - June 2013-Q3b) (Extract)

The remittance basis of taxation:

– Advice is to be provided to three non-UK domiciled individuals.
– Each of the three individuals is more than 18 years old.

Details of the three individuals: Lin Nan Yu

Tax year in which the individual became UK resident 2011/12 2006/07 2011/12
Tax year in which the individual ceased to be UK resident still resident 2018/19 still resident
Overseas income and gains for the tax year 2021/22 £39,200 £68,300 £130,700
Overseas income and gains remitted to the UK for the
tax year 2021/22 £38,500 Nil £1,400

Required:

(A) In respect of each of the three individuals for the tax year 2021/22:

(A1) explain whether or not the remittance basis is available;

(A2) on the assumption that the remittance basis is available to ALL three individuals, state,
with reasons, the remittance basis charge (if any) that they would have to pay in order
for their overseas income and gains to be taxed on the remittance basis.
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(B) Give TWO examples of actions that would be regarded as remittances other than simply
bringing cash into the UK.
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Question 9: (Exam Question – Dec 2014) (Extract)

Buraco's links with the country of Canasta:

 Buraco is domiciled in Canasta.

 Buraco owns a home in the country of Canasta.
 Buraco's only income is in respect of investment properties in Canasta.
 Buraco frequently buys and sells properties in Canasta.

Buraco's links with the UK:

 Buraco's ex-wife and their 12-year-old daughter moved to the UK on 1 May 2022.
 Buraco first visited the UK in the tax year 2021/22 but was not UK resident in that year.
 Buraco did not own a house in the UK until he purchased one on 6 April 2022.
 Buraco expects to live in the UK house for between 100 and 150 days in the tax year 2022/23.

Required

(Q9-i) Explain why Buraco will not satisfy any of the automatic overseas residence tests for the tax year
2022/23, and, on the assumption that he does not satisfy any of the automatic UK residence
tests, explain how his residence status will be determined for that tax year. (7 marks)
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(Q9-ii) On the assumption that Buraco is resident in the UK in the tax year 2022/23, state the tax
implications for him of claiming the remittance basis for that year and explain whether or not
there would be a remittance basis charge. (3 marks)
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Double Taxation:
- Foreign income is taxed in the same way in UK, as it is a UK income

- Foreign income is recorded by Gross Amount in UK income tax calculation

- If income is taxed twice

- Tax Treaty exist  mentioned in questions

(would prevail from common tax law)

- Tax Treaty does not exist  Double Tax Relief (DTR)

(automatically)

LOWER OF

- UK Tax
(Needs to be calculated)

- Foreign Tax
(Clearly given in question)

UK Tax Calculation  3 Steps Approach

Step 1 - Calculate UK Income Tax Liability including Foreign Income

Step 2 - Recalculate UK Income Tax Liability excluding Foreign Income

Step 3 - Difference of Step 1 & 2 is the UK Tax on Foreign Income

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Question 10 (Double Tax relief)

A UK resident and domiciled individual has the following income for 2021/22.

UK salary £36,705
Interest on overseas loan stock (net of overseas tax at 5%) £4,750
Overseas rents (net of overseas tax at 60%) £1,500

Assuming that maximum DTR is claimed, show the UK tax liability.

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Question 11 (Foreign Income Taxation)

Susan (age 42) received the following income in 2021/22.

UK dividends £9,000
Overseas property business income £10,000(gross)
UK earnings income (gross) £22,560

The overseas property business income suffered £2,705 of overseas tax.

Required

(a) Calculate the tax payable by Susan if she has suffered £2,800 of tax under PAYE for the year.
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(b) To correct an error made on the behalf of the overseas country in 2021/22 on 1 November 2023
Susan receives from the overseas authorities a refund of £1,600 of the overseas tax suffered.
What should Susan do in respect of this receipt?

(c) Susan is likely to be sent overseas to work in Utopia for 15 months. The posting will run from 1
June 2021 although it could be altered to commence on 1 April 2021. Advise Susan on what
effect this will have on her UK tax liabilities.
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Domicile
The country in which they have their permanent home.

There are four types of domicile for tax purposes:

1) Domicile of Origin: permanent home of father

2) Domicile of Dependency: until aged 16, domicile dependent on father

3) Domicile of Choice: from 16 years, can change domicile if sever links with old country, and establish
residence in new country.

3A) Coming to the UK - A non-UK domiciled individual who comes to the UK will become UK
domiciled:

 if all links with the former country of domicile are cut, and
 the individual intends to remain in the UK permanently.

3B) Leaving the UK - An individual who has left the UK will cease to be UK domiciled:

 if all links with the UK have been cut, and

 the individual intends to remain in the new country permanently.

4) Deemed Domicile (For IT and CGT): Applies to:

 long term residents, and

UK resident for 15 of the previous 20 tax years (exception = not deemed UK domiciled if not UK
resident in any tax year from 2017/18 onwards)

 former UK domiciled residents - born in the UK, and domicile of origin = UK, and UK resident in the
tax year.

Deemed Domicile Status – Inheritance Tax

 UK domiciled individuals who leave the UK - After leaving the UK, such individuals are deemed to
be UK domiciled for a further three years (only for IHT purposes)

 Long term residents – all conditions for IT and CGT, plus - have been resident in the UK for at least
one of the four tax years ending with the relevant tax year.

 Formerly domiciled residents – all conditions for IT and CGT, plus - resident in the UK for at least
one of the two tax years immediately preceding the relevant tax year.
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Exam Question - Pilot Paper

Mahia Ltd is an unquoted, UK resident trading company formed in May 2016. One of its shareholders, Claus
Rowen, intends to sell his shares back to Mahia Ltd on 31 July 2023. Another shareholder, Maude Brooke, intends
to give some of her shares to her daughter, Tessa.

The following information has been extracted from client files and from meetings with the shareholders.
Mahia Ltd:
– In May 2016 the company issued 40,000 shares at £3.40 per share as follows:
Claus Rowen 16,000
Charlotte Forde 12,000
Olaf Berne 12,000
– Olaf sold his 12,000 shares to Maude Brooke on 1 October 2021 when they were worth £154,000.

Claus and Charlotte:

– Have always lived in the UK.
– Are additional rate taxpayers who use their capital gains tax annual exemption every year.

Maude:
– Was born in the UK, but moved to Canada on 1 April 2019 with her daughter, Tessa.
– Has not visited the UK since leaving for Canada, but will return to the UK permanently in December 2028.
– Is employed in Canada with an annual salary equivalent to £70,000.

Sale of shares by Claus:

– Charlotte and Maude want to expand the company’s activities in the UK but Claus does not. The shareholders
have been arguing over this matter for almost a year.
– In order to enable the company to prosper, Claus has agreed to sell his shares to the company on 31 July 2023.

Gift of shares by Maude:

– Maude will gift 4,000 shares in Mahia Ltd to her daughter, Tessa, on either 1 August 2023 or 1 June 2024.
– She will delay the gift until 1 June 2024 (Tessa’s wedding day) if this reduces the total tax due.
– The tax due in Canada will be the same regardless of the date of the gift.
– She has made no previous transfers of value for UK inheritance tax purposes.
– For the purposes of this gift, you should assume that Maude will die on 31 December 2027.

Market values of shares in Mahia Ltd on all relevant dates are to be taken as:
Size of shareholding Market value per share
% £
< 25 10.20
25 – 35 14.40
> 35 38.60

Market values of the assets of Mahia Ltd on all relevant dates are to be taken as:
£
Land and buildings used within the trade 1,400,000
Three machines of equal value used within the trade 15,000
Motor cars used by employees 45,000
Quoted shares 42,000
Inventory, trade receivables and cash 145,000
Required:
(a) Advise Claus on the tax treatment of the proceeds he will receive in respect of the sale of his shares to Mahia
Ltd. Prepare a calculation of the net (after tax) proceeds from the sale based on your conclusions.

(b) Advise Maude on the UK tax consequences of gifting the shares to Tessa and prepare computations to
determine on which of the two dates the gift should be made, if the total UK tax due on the gift is to be minimised.
Your answer should consider all relevant taxes. You may assume that the rates and allowances for the tax year
2021/22 will continue to apply for the foreseeable future.