Tax residence in the UK: when do people become liable for income and capital gains tax?

Most Free Movement content is, unsurprisingly, about movement (even if it’s not free these days). But what happens after movement to the UK? Well, two things are certain: death and taxes. Many immigration practitioners, myself included, are blissfully unaware of the numerous other legal consequences that might crop up outside the purview of the Home Secretary but which may be of importance to our clients.

I’ve enlisted my specialist private wealth and tax colleague Emma Read to share some insights into a few areas I usually sidestep:

• Tax residence for income and capital gains tax
• Inheritance tax, Wills and Power of Attorney
• Buying property in the UK 

We will cover these areas as part of a series over the coming weeks, providing some basic immigration-adjacent information relevant to those moving to/already in the UK, and those advising them.

This first article is about the concept of tax residence.

Tax residence should not be confused with immigration permission.

The UK’s immigration system exists, for the most part, independently of the UK’s taxation system.

The two main taxes

People moving to the United Kingdom need to be aware of two main taxes:

1. Income Tax;
2. Capital Gains Tax.

Whether these taxes apply will often depend on where you reside for tax purposes. It is entirely possible for a foreign citizen to have immigration permission to reside in the UK, but not to spend enough time in the UK to be tax resident in the UK. Such an arrangement may have immigration consequences for future settlement in the UK, so it’s always sensible to consider immigration advice in parallel with tax advice, and never to assume that one advisor knows the business of another!

Why does ‘residence’ matter when it comes to tax?

Residence determines if you are liable to pay tax on your worldwide income and capital gains in the UK.

What does it mean to be resident in the United Kingdom?

Since 6 April 2013, the United Kingdom has used something called the Statutory Residence Test to determine if you are resident in the United Kingdom for tax purposes. There are many component parts to the Statutory Residence Test; below are the components most likely to affect those increasing the time they are spending in the United Kingdom.

Automatic residence: the 183-day test

You will be automatically tax resident in the United Kingdom if you are present in the United Kingdom for 183 or more days in a financial year. A financial year runs from 6 April in one calendar year to 5 April in the next calendar year, for example 6 April 2023 to 5 April 2024. You are generally considered as being present in the United Kingdom for one day if you are present at midnight of that particular day. Therefore if you arrived on Monday at 9am, and left on the Friday of that week at 3pm, you would be present for four days as you would only have been present at midnight on Monday, Tuesday, Wednesday and Thursday.

Example

Anton has a Global Talent visa enabling him to live in the UK. Between 5 April 2022 and 6 April 2023, Anton spent 170 days in the UK. He spent the rest of that financial year living outside the UK. Because he spent less than 183 days in the UK, he would not be automatically tax resident in the UK for that financial year, provided he does not meet the “main home test” described below.  While Anton may not be automatically resident in the UK for the year in question he may still be resident under the sufficient ties test (see below)

This 183-day tax residence test is often, wrongly, conflated with absence rules under many immigration routes. Many immigration routes, such as the Skilled Worker route, require less than 180 days of absences from the UK in any rolling 12-month period in order to achieve eligibility for settlement. These are different tests, applied by different Government bodies, to assess different things.

Automatic residence: the main home test

You will also be automatically tax resident if:

1. you have a residence or home in the United Kingdom which is available for you to use for 91 or more consecutive days (30 requiring to be in the tax year in question);
2. this home is used for 30 or more days in that tax year;
3. you do not have a home available to you abroad, or, if you do, you are present there for less than 30 days in the tax year.

Example

If Anton (or his partner) owned or rented a property in the United Kingdom which as a result, was available to him to stay in, he spends one week a month in the property (84 days) and did not have a home available to him abroad, then he would be considered as automatically tax resident. If he did have a property available to him abroad and spent 30 or more days in this property, he would not be considered as automatically tax resident.

Automatic residence: full time work

You will also be automatically tax resident if all of the following requirements are met:

1. you work full-time in the UK for any period of 365 days, which falls in the relevant tax year;
2. you work for at least three hours in the UK for more than 75% of the total number of days in the 365-day period;
3. at least one day in both the 365-day period and the tax year is a day on which you do more than three hours work in the UK.

Example

Anton’s circumstances later change, and he takes up a full-time position in the UK which he starts on 1^st May 2022. His posting finishes on 31^st May 2023 and he leaves the UK the following week. Over the course of his posting, Anton worked for over three hours on 300 days (75.9%) and at least one day when Anton works for more than three hours falls within the 2022/23 tax year. Therefore, Anton is automatically resident in the UK for the 2022/23 tax year. Indeed, Anton will also be deemed resident in the UK for the 2023/24 tax year if at least one of the days worked in the period from 6th April 2023 to 31st May 2023 was a day on which he does more than three hours work in the UK.

Sufficient ties test

If you are not automatically resident in the United Kingdom, you must consider the sufficient ties test to determine if you are tax resident in a particular financial year.

If, after taking account the length of your presence int the United Kingdom, you have enough ties to the United Kingdom then you will also be considered as resident in the United Kingdom for tax purposes. The number of ties required to establish residency varies depending on the number of days spent in the United Kingdom in a particular tax year.

There are five possible ties:

1. Family tie: if you have a spouse, civil partner or child who is resident in the United Kingdom.
2. Accommodation tie: if you have a home in the United Kingdom which is available for you to use for 91 consecutive days.
3. Work tie: if you work in the UK for three or more hours per day on at least 40 days in the tax year. ‘Work’ includes travelling for work, training and checking emails.
4. 90-day tie: where you have spent 90 days or more in the UK in either of the previous two tax years.
5. Country tie: if you have spent more days in the UK than you have spent in any other country in the relevant tax year (this tie only applies in a year you are leaving the UK).

For those people who have not been otherwise resident in the UK in either of the last two tax years, you will be resident in the United Kingdom if:

1. You have two ties and spend between 121 and 182 days in the United Kingdom.
2. You have three ties and spend between 91 and 120 days in the United Kingdom.
3. You have four ties and spend between 46 and 90 days in the United Kingdom.

If you spend less than 46 days in the United Kingdom then you will always be non-resident (provided you have not been previously resident in either of the last two tax years – for those who have been previously resident fewer days and ties are required to make them resident).

How will my income be taxed?

If you are resident in the United Kingdom, you will be liable for income tax on all UK employment income and income deriving from other UK sources such as UK based investments or UK rental income.

You will also be required to pay income tax on all foreign sources of income unless you elect to become a remittance basis user.  This is also subject to the application of any relevant double taxation treaties that may apply to you.

If you are not resident in the UK for tax purposes this does not mean you escape UK tax altogether.  Income with a UK source is still potentially subject to UK tax.  Certain capital gains (those relating to UK land and buildings) are also subject to UK tax regardless of the residence position.

What is a remittance basis user?

In certain cases individuals who are resident in the UK but who are not “domiciled” in the UK can elect to pay tax by the “remittance basis”.  Put simply this prevents non-UK income and gains being subject to UK tax provided the relevant funds (or other assets representing them) are not brought into the UK.  The availability and operation of the remittance basis is a complex topic and it outside the scope of this article.

I already pay tax on my income in my country of origin, will I be taxed on this income twice?

There are many countries which have double taxation treaties with the United Kingdom. Double taxation treaties regulate which country will have priority to charge tax on income (and capital gains) where, in theory, tax may be chargeable in both countries. In some cases foreign tax is still due on income properly taxable in the UK.  In such cases relief from double taxation is also generally available under UK law.

How does this work in practice and what do I need to do?

If you have a liability to pay income tax in the United Kingdom, there are a few ways in which this can be paid.

If you are employed, income tax is normally deducted at source via the Pay As You Earn system. If you have income from other sources, on which tax is not deducted at source, you may be required to register with HM Revenue & Customs for self-assessment. You would then be required to submit annual income tax returns to HMRC (the government body responsible for collecting taxes). Any income tax that is due in respect of income acquired in one financial year must be reported and paid by 31 January in the following calendar year.  There is also a system of making payments on account.

If you trigger a capital gains tax liability, then this would be reported within your self-assessment return. Any tax payable that relates to gains triggered in one financial year must be reported and paid by 31 January in the following calendar year. If you trigger a capital gains tax in respect of a residential property, the reporting and payment requirements vary and a real-time return must be submitted and the tax paid within 60 days.

Will I pay tax if I sell my property or investments?

If you are resident in the United Kingdom and you sell foreign assets which are subject to a capital gain, then yes, you will need to pay capital gains tax on the value of any gain that exceeds your annual exempt amount (currently £6,000 and set to reduce to £3,000 in 2024/25).

If you are a remittance basis user, explained above, then you will only pay capital gains tax on any foreign gain which you remit to the United Kingdom.

If you have foreign assets which are pregnant with significant gains and plan to sell these shortly after moving to the UK, it would be a good idea to take advice on the timing of any sales in case it may be more tax efficient to sell the assets prior to becoming UK resident.

If you sell a property which was your main residence, then you may be able to claim principal private residence relief on any gain that arises during the period that the property was your main residence (which may result in no capital gains tax being payable).

Does where I live in the UK affect how much tax I will pay?

In short, yes.

Scotland and England have separate legal systems and certain tax raising powers have been devolved from the UK Government to the devolved legislative bodies in Scotland, Wales and Northern Ireland.

Income tax

If you are resident in Scotland, you will pay income tax on some forms of income at different rates to the rest of the United Kingdom. These are detailed here.

What about capital gains tax?

Tax on capital gains is charged in the same way across the United Kingdom.

The purpose of this article is to give an overview on a number of taxes which are most relevant to individuals who are considering a move to the United Kingdom. It is not intended to provide specific legal advice and professional advice relevant to your circumstances should always be obtained.