UK Tax Residence for Those Leaving the Country

There are several reasons why individuals choose to leave the UK, such as a desire for a change in lifestyle, job opportunities or requirements to relocate overseas, or personal circumstances necessitating a move. Regardless of the motivation for leaving, it’s crucial to comprehend the impact of relocation on your tax obligations.

The Statutory Residence Test (SRT)

The UK uses the Statutory Residence Test to decide if you’re a tax resident. This test is complex but important. It gives clear rules about when you stop being a UK resident for tax purposes.

The SRT looks at two main things:

1. Your connections to the UK (called ‘ties’)
2. How many days you spend in the UK each tax year

UK ties include:

• Work in the UK
• Family in the UK
• A home in the UK
• Time spent in the UK in previous years
• Time spent in the UK compared to other countries

The more ties you have, the fewer days you can spend in the UK before becoming a resident again.

Changes to Non-Dom Status

The UK is changing tax rules for non-domiciled residents. These changes start from April 6, 2025. They may affect you even after you leave the UK. It’s important to stay informed about these changes.

Three Parts of the SRT

The SRT has three main parts:

1. Automatic non-resident test
2. Automatic resident test
3. Sufficient ties test

You only need to meet one of these tests. Let’s look at each one in more detail.

Automatic Non-Resident Test

This test is the easiest way to be a non-resident. You’re automatically non-resident if you’re in the UK for:

• Less than 16 days (if you were a UK resident in the last three years)
• Less than 46 days (if you weren’t a UK resident in the last three years)
• Less than 91 days (if you work full-time abroad)

For the work abroad rule:

• You must work 35 hours a week on average
• You can’t have breaks longer than 30 days
• You can’t work more than 3 hours a day in the UK for more than 30 days

Some days don’t count if you can’t leave due to emergencies, and days when you’re just passing through the UK also don’t count.

Sufficient Ties Test

If you don’t meet the automatic non-resident test, you might still be non-resident under the sufficient ties test. This test looks at your UK ties and the days you spend in the UK.

The five UK ties are:

1. Family tie: Your spouse, partner, or child lives in the UK
2. Accommodation tie: You have a place to stay in the UK for 91 days or more
3. Work tie: You work in the UK for 40 or more days, at least 3 hours per day
4. 90-day tie: You spent over 90 days in the UK in either of the last two tax years
5. Country tie: You spend more time in the UK than any other single country

The more ties you have, the fewer days you can spend in the UK and still be non-resident.

Days in the UK and Ties

Here’s a simple guide:

• With 4 or more ties: You can spend up to 45 days in the UK
• With 3 ties: You can spend up to 90 days in the UK
• With 2 ties: You can spend up to 120 days in the UK
• With 1 tie: You can spend up to 182 days in the UK
• With no ties: You can spend up to 182 days in the UK

Remember, these numbers are for people who have been UK residents for the past three years. The rules are slightly different if you weren’t.

Split Year Treatment

Usually, your residence status is for a full tax year. But in some cases, the year you leave can be split into resident and non-resident parts. This is called split-year treatment.

Split-year treatment can be helpful. You may not pay UK tax on your foreign income for part of the year you leave. However, the rules for split-year treatment are complex.

Anti-Avoidance Rules

The UK has rules to prevent people from temporarily leaving to avoid tax. These are called anti-avoidance rules. They apply to large incomes or capital gains.

If you return to the UK too soon, you might still pay UK tax on certain income and gains. The length of time you need to stay away depends on why you left and how long you were in the UK before.

Keeping Records

It’s very important to keep good records when you leave the UK. You should record:

• The days you spend in the UK
• Where do you work, and for how long
• Where do you have homes or places to stay
• Your family’s residence status

These records will help if HMRC (the UK tax authority) asks questions about your status.

Tax Implications of Non-Residence

Being a non-resident can change your UK tax situation a lot. Here are some key points:

1. Income Tax: As a non-resident, you generally don’t pay UK tax on foreign income. But you may still pay UK tax on UK income, like rent from UK property.
2. Capital Gains Tax: Non-residents usually don’t pay UK tax on gains from selling assets. However, there are exceptions for UK property and some business assets.
3. Inheritance Tax: This can be complex. Even if you’re non-resident, your UK assets might still be subject to inheritance tax.
4. Pensions: The tax treatment of your UK pension can change if you’re non-resident. You might be able to take your pension tax-free in the UK, but it might be taxed in your new country.

Returning to the UK

If you plan to return to the UK, you need to be careful. Coming back too soon can affect your tax status. It might mean you’re treated as if you never left.

The exact rules depend on why you left and how long you were away. In some cases, you need to be non-resident for at least five tax years to avoid complications when you return.

Double Taxation Agreements

The UK has agreements with many countries to prevent double taxation. These agreements can affect your tax situation when you leave the UK. They decide which country has the right to tax different types of income and gains.

If you’re moving to a country with a double taxation agreement, it’s worth checking how it might affect you.

Notifying HMRC

When you leave the UK, you should tell HMRC. You can do this by filling in form P85. This form tells HMRC:

• When you left the UK
• Where you’re going
• What you’re doing with your UK income

Filling in this form can help make sure you’re taxed correctly.

National Insurance

Becoming a non-resident doesn’t automatically stop your UK National Insurance contributions. If you work abroad, you can continue paying UK National Insurance. This can help protect your entitlement to UK state pension and benefits.

Special rules may apply if you work in the EU, EEA, or a country with a social security agreement with the UK.

Healthcare

Leaving the UK can affect your right to use the NHS. If you’re moving permanently, you’ll usually lose your NHS entitlement. But there are exceptions, like if you’re working abroad for a UK employer.

If you’re moving to an EU country, you could use your UK European Health Insurance Card (EHIC) or apply for a new UK Global Health Insurance Card (GHIC).

Bank Accounts and Financial Services

Being a non-resident can affect your UK bank accounts and financial services. Some providers don’t serve non-residents. Others might limit the services they offer. It’s a good idea to check with your providers before you leave.

Property in the UK

If you keep property in the UK, there are some important points to remember:

1. You’ll still pay UK tax on rental income from UK property.
2. You may have to pay Non-Resident Landlord Tax.
3. If you sell the property, you may have to pay Capital Gains Tax, even as a non-resident.

Investments

The tax treatment of your investments can change when you become a non-resident. For example:

• ISAs lose their tax-free status for non-residents.
• The tax treatment of dividends and interest may change.
• You might face restrictions on buying or holding certain investments.

It’s worth reviewing your investments before you leave the UK. The rules around tax residence are complex. They can have a big impact on your finances. It’s often a good idea to get professional advice before you leave the UK. Our tax experts can help you:

• Understand your likely residence status
• Plan to minimise your tax liability
• Make sure you comply with all the rules

Leaving the UK can have significant tax implications. The Statutory Residence Test determines your tax status based on your ties to the UK and the time you spend there. Key points to remember:

1. Keep records of your time in and out of the UK.
2. Understand how many days you can spend in the UK based on your ties.
3. Be aware of anti-avoidance rules if you plan to return to the UK.
4. Consider how non-residence will affect your income, gains, and inheritance tax.
5. Tell HMRC when you leave the UK.
6. Think about your National Insurance, healthcare, and financial services.

Understanding these rules can help you make informed decisions about your move abroad and manage your taxes effectively. Keep in mind that tax laws can change, so stay informed or seek updated advice regularly.