A Guide to Understand UK Tax Residency

Thinking about leaving the UK or already living abroad? Let's talk about something that often confuses expats: tax residency. It might sound boring, but trust me – understanding your tax residency status is pivotal for managing your finances when you're living between countries.

What is Tax Residency?

Simply put, tax residency determines which country gets to tax your worldwide income. It's not just about where you hold your passport or where you happen to be living – it's about your connection to a country and how much time you spend there.

When are you a UK Tax Resident?

HMRC uses something called the Statutory Residence Test (SRT) to figure this out. Here's the simple version – you're typically considered a UK tax resident if:

• You spend 183 days or more in the UK during the tax year
  
  
• Your only home is in the UK (and you've lived there for at least 91 days)
  
  
• You work full-time in the UK
  
  
• You have strong ties to the UK through family, work, or property

How to become a non-UK Tax Resident

If you’re looking to learn how to lose your UK tax residency, it's not as simple as just hopping on a plane. Here's what you need to do:

• Keep your UK visits brief (less than 16 days per tax year, or 46 days if you haven't been a resident in the last three years)

• Find full-time work abroad

• Cut down your UK ties – this means considering your family situation, selling or renting out UK properties, and ending UK work commitments

• Build a proper life in your new country

The tax impact of changing Residency

When you become a non-UK resident, you'll generally only pay UK tax on money you earn in the UK (like rental income or pensions). But watch out for the 'temporary non-residence' rules – these stop people from avoiding tax by briefly leaving the UK for five years or less.

Something else to consider is the impact on your investments. Changing your tax residency might trigger something called 'deemed disposal,' which could mean paying capital gains tax on assets even if you haven't sold them. It's worth planning for this to avoid unexpected tax bills.

Dealing with Dual Residency

Sometimes you might end up being a tax resident in two countries. Don't panic! Many countries have tax agreements with the UK (called Double Taxation Agreements or DTAs) to prevent double taxation. These agreements help decide which country gets to tax what and can save you from paying twice on the same income.

These agreements typically include:

• Tie-breaker rules to determine your primary country of residence

• Tax credits to offset tax paid in one country against tax owed in another

• Special rules for specific types of income like pensions and dividends

Remote Workers and Digital Nomad Tax Residency

If you're part of the growing digital nomad community or working remotely, your tax situation needs extra attention. Here are some specific challenges you might face:

• Your frequent travel might make it hard to establish clear tax residency

• You could accidentally create a 'permanent establishment' in countries you work from, leading to corporate tax obligations

• Working with multiple currencies can complicate your tax calculations

• Social security contributions might be required in different countries

Keep detailed records of:

• Your travel dates
  
  
• Where you're working from
  
  
• Where you're staying
  
  
• All your work contracts and payments

Tips to manage your Tax Residency successfully

1. Keep detailed records of everything – travel, work, and where you're living
   
   
2. Review your tax residency status regularly
   
   
3. Plan ahead if you're thinking about moving
   
   
4. Stay informed about tax treaties if you're connected to multiple countries
   
   
5. Consider how changes might affect your investments and pension arrangements

When considering your tax residency situation, think about making smart choices that work for your lifestyle, in line with tax authority rules to avoid any surprises.

Tax residence rules can be easily overlooked, so it pays to have an expert look at your situation to avoid going foul of the rules. If you would like, you can book a consultation with us for advice on navigating your tax residency.