What is residence?
Your residence status is one of the factors that decides what UK tax you pay and on what types of income and gains. Here we explain what residence means and how it applies to you.
What is residence?
Your ‘tax residence’ helps determine the scope of your tax liability in the UK. The UK taxes its residents on their worldwide income and gains (although relief from UK tax on certain foreign source income and gains may be available for non-UK domiciled individuals – see the section ‘how are foreign income and gains taxed?’). Non-residents are typically liable to tax on their UK source income only.
With effect from 6 April 2013, there is a Statutory Residence Test (‘SRT’) for the UK to help determine your tax residence status – this means that the rules for residence are set out in tax law. Prior to 6 April 2013, residence was a general term, with no legal definition. However, the position under both is broadly the same for many people.
You are likely to be treated as UK tax resident under the SRT if you:
- Spend 183 days or more in the UK during a tax year, or
- Have a home in the UK, and do not have a home overseas, or
- Work full-time in the UK over a period of 365 days (this does not need to coincide with the tax year).
You could also be treated as UK resident even if you do not satisfy any of these conditions. This will be partly determined by how much time you spend in the UK in a tax year (or a series of tax years) and the number of connections you have to the UK. The more time you spend in the UK, the fewer connections you need to be UK resident for tax purposes and therefore subject to UK tax on your foreign income and gains.
There is more detail in the section – When is someone resident in the UK?
Normally you are tax resident (or not tax resident) in the UK for a complete tax year – however sometimes you can split the tax year. It is possible to be tax resident in both the UK and another country at the same time: this is called dual residence. You can be UK resident, even if you are not domiciled in the UK.
You can find the guidance for the SRT on the GOV.UK website.
Why does tax residence matter for migrants working in the UK?
Migrant workers are subject to UK tax on their UK earnings, whether or not they are resident in the UK. So, if you only have UK income while you are here, it may not matter much whether or not you are tax resident: all of your UK income will be subject to UK tax.
However when you are UK resident, any foreign income and gains you have may also be taxed in the UK. It is therefore important to know if you are tax resident or not for this reason. This is the case even if they have already been taxed in another country (although you should be able to get some double taxation relief if this is the case). There is more information on this topic on our webpage ‘how are foreign income and gains taxed?’.
Your residence status will also affect whether or not you are eligible for the UK personal allowance and therefore the amount of UK tax that you pay. If you are tax resident in the UK you will get a personal allowance.
As the personal allowance is quite generous, it is possible to have income below the personal allowance, then you may have no tax to pay. Your entitlement to a personal allowance is therefore very important.
There are some circumstances in which you may be resident but lose your personal allowance. This means you may pay more tax. There is more information on this topic on our webpage ‘how are foreign income and gains taxed?’.
If you come to the UK, but do not become resident here you may be able to get personal allowance in certain situations, for example if you are a citizen of an EEA country. You can find out more about this in section 8 of HMRC’s RDR1 booklet available on GOV.UK.
How do I tell HMRC what my residence status is?
In the UK, you self-assess your residence and domicile status.
There is no formal process for agreeing your residence status with HMRC (or even for advising them of your arrival in the UK), however if you are someone who is required to submit a tax return, you will need to complete SA109 ‘Residence, remittance basis etc.’ supplementary pages if your residence status is relevant to the entries on your tax return (for example, if you have left out your foreign income and gains on the basis that you consider yourself non-resident in the UK). This is then subject to potential audit by HMRC if they wish to challenge the position you have taken.
It is important that you keep certain information and records to help you work out your residence status.