What is dual residence?
It is possible to be resident for tax purposes in more than one country at the same time. This is known as dual residence.
If you are resident in the UK and another country and so are liable to tax on your worldwide income in both, you have to look at the double taxation agreement between the two countries to find out where you should pay tax.
If you have dual residence with the UK and another country, then a double taxation agreement may prevent you from being taxed twice on the same income.
Mary is a chef and leaves Ireland to come to the UK to look for work on 1 July 2018. She stays with friends. She does not find any work and returns to Ireland for two months over Christmas (she finds a Christmas job in a hotel in Dublin). She comes back to the UK in February 2019 and starts looking for work again.
Under UK rules, Mary is UK tax resident for 2018/19 as she spent more than 183 days here, so she is taxable in the UK on her worldwide income. Under Ireland’s rules, Mary is tax resident there too. This leaves her Christmas job income potentially subject to both UK and Irish tax, due to her being treated as tax resident in both countries.
Mary can look at the double tax treaty to see if it can help avoid this double taxation situation. Where a dual-residence situation causes double taxation, most treaties contain a series of ‘tie-breaker’ tests to help determine which country’s residence takes precedence. They generally say the ‘winner’ country is:
They generally say the ‘winner’ country is:
The country where the individual has a permanent home available to them
If the individual has a permanent home in both countries, the country where the individual's personal/economic ties are closer (this is known as ‘centre of vital interests’)
If it is not possible to determine at which permanent home the centre of vital interests lies, the country where the individual has a habitual abode
Where the habitual abode test is not decisive, the country where the individual is a national
If the individual is a national of both countries (or of neither), then the countries must settle the matter by mutual agreement.
The answer to the first test for Mary is ‘Ireland’ as this is where her family home is. As she meets the first test she does not need to look at the remaining tests. This means that Mary is treated as ‘treaty resident’ in Ireland and ‘treaty non-resident’ in the UK – these special treaty rules override the actual position.
As non-residents in the UK (including those that are only non-resident by virtue of the treaty tie-breaker tests) are only taxable on UK income, the UK will give up its right to tax Mary on her Irish employment income and it will be taxed in Ireland only (which is probably what we would have expected to happen).
The HMRC Helpsheet 302 provides further information on dual residence. You can find this on the GOV.UK website.
There is a list of the current double taxation agreements on the GOV.UK website.
If you are dual resident in the UK and a country that does not have a double taxation agreement with the UK, then you can usually set off tax paid in one country against tax due in the other country.
You will probably need to seek some professional advice if you find yourself in a ‘dual residence’ situation.