The exodus from Singapore continues. I’m told that expats trying to ship household goods are facing delays. It’s August and no containers are available until February next year?
The destinations of choice have to be Europe and New Zealand. Even Americans seem to prefer Europe to going back to the States.
I was in the UK for a month myself and only just left yesterday. For those moving to the UK in September or October this year, there are of course questions around the tax implications of the move.
As always, the answer is that…it depends
1. You may be able to choose whether you are to be taxed either on the remittance basis or on the arising basis –
2. You should also need to determine whether you meet the statutory residence test or not. There’s a detailed discussion below but here’s a tool from the HMRC website
Now if the SRT above is not conclusive, but only narrowly – say non-residence would apply, but that the relevant day count would just be exceeded, check to see there is any flexibility over the proposed move date.
When the result of the SRT is UK residence, the only way prior earnings (from Singapore eg) can be protected from UK tax is by relying on split year treatment. Where this applies, the tax year is split into a non-resident and residence period. Any foreign income relating to the non-resident portion is not subject to UK tax. The split year treatment was put on a statutory basis from April 2013, and there are now some circumstances where it does not apply.
In total there are eight cases (circumstances) in which split year treatment is available. The first three apply to individuals leaving the UK
- Case four – This case applies where you are beginning to have their only home in the UK, i.e. no longer has any other available home in another country. “Home” for these purposes includes any kind of accommodation with some sense of permanence; not just buying or renting a house or flat, it could include a hotel, caravan, houseboat, etc.
- Case five – This case applies if you are non-resident in the previous tax year and begin to work full-time in the UK. To be effective there has to be a 365-day period where you meet the full time UK employment requirement, and at least one of these days has to fall into the tax year they are looking to claim split year treatment for. The employment requirement broadly means working on average more than 35 hours per week with no significant breaks. Again you cannot be resident in the sufficient ties test for the period before the UK employment begins.
- Case six – This case is only relevant for those who have left the UK to work full time overseas and are now returning. To apply, you will need to have been resident in one of the four tax years immediately preceding the one you are looking to claim split year treatment for, and have met the full-time overseas work requirements for the part of the tax year they were still working overseas in. You need to be aware that if relying on case six, the day counting limits for automatic residence need to be applied on a pro rata basis to the period you were working overseas – so if you were looking to return on 5 May they would only be able to have spent 1/12 of the usual number of days required for automatic residence. This might create problems where the start of the year coincided with a family holiday, say, over Easter.
- Case seven -This case applies if it is the individual’s partner who has ceased UK employment, and that partner meets the conditions of case six as discussed above. To rely on case six or seven (or eight below), you need to remain UK resident for the tax year after the one you return to the UK in, so you will need to use the SRT again. Please keep sufficient records to demonstrate the time inside and outside the UK accordingly.
- Case eight – The final case is similar to case four; however it applies to anyone who starts to have a home in the UK, i.e. it doesn’t need to be the only home. There are extra conditions, namely that they have no UK home at the start of the tax year, but once they acquire one, they do have a UK home for the remainder of this tax year and the entirety of the subsequent one. Again, they cannot fail the sufficient ties test.
If you meet at least one of these conditions, you can claim split year treatment and protect pre-resident earnings from UK tax. If not, you will need to look to the tax treaties for any double tax relief available – which unfortunately may not be that helpful.
Please note that if more than one condition is met, there are strict rules to determine which one takes precedence. This is important as the “splitting date” may be different under one case than another – so may affect which earnings are subject to UK tax.
Notes on RESIDENCY
The statutory residence test in practice
Until 2013/14 the question of whether an individual was resident or not in the UK for tax purposes was based on a supposedly simple day count in any one year. There was no statutory legislation governing this, only HMRC’s published guidance in booklet IR20 .
One particular individual, Robert Gaines-Cooper, took great pains to ensure he stayed below the limits for days present in the UK and claimed that he was non-resident for several decades. HMRC disagreed, pursuing him for unpaid tax dating back to 1982, despite his not meeting any of the conditions for residence set out in IR20. HMRC eventually won the case (which was appealed unsuccessfully in the Supreme Court), citing amongst other things that IR20 was only ever intended to be guidance and (conveniently) did not represent the law (see Follow up ).
The saga directly led to the development and eventual introduction of the statutory residence test (SRT) in the Finance Act 2013 . The aim of this is to give certainty to individuals in respect of their residence status in any given tax year. How does it work?
The SRT is potentially a three-stage logical process. It first seeks to determine whether an individual is definitively not resident for any given tax year. If a definitive answer cannot be reached, then the second test – that for definitive UK residence – is undertaken. If this does not provide a conclusive answer, then the third “tiebreaker” test must be applied, which considers the number of connecting factors the individual has to the UK.
Test 1. Definitive non-residence
The first consideration is whether the individual was tax resident in the UK in any of the previous three tax years. Dependent on the answer to this, the next consideration is whether the individual has been present in the UK for fewer than either 46 days (if “no”) or 16 days (if “yes”). If the individual has been present for less than the relevant day count for the tax year in question, they are classed as definitively not UK resident for that year. If these day counts are exceeded, the individual can still be definitively non-resident if they are working full-time abroad, is present in the UK for no more than 90 days, and has no more than 30 UK work days in the tax year. If these considerations are not met, we move on to the second test.
Test 2. Definitive UK residence
The second test begins by considering if the individual is present in the UK for at least 183 days in the tax year.
Assuming the answer is “no”, the test then looks at whether the individual has their only home in the UK for a period of 91 consecutive days, at least 30 of which fall in the tax year.
Pro advice. “Home” can include any accommodation with sufficient permanence, and does not require ownership. It can potentially therefore include a house, flat, hotel or even a caravan or houseboat.
If the answer is “yes”, the individual can be definitively classed as resident. If not, their UK work pattern must be looked at. The test seeks to ascertain whether the individual in the tax year averages 35 hours per week, has no significant break from this work and has more than 75% of their work days in the UK. If all three conditions are satisfied, the individual is resident, and if not, we must consider the third test.
Test 3. Sufficient ties
The third test is designed to be a tiebreaker where the first two tests do not provide a definitive result, and combines the day count for the year with the number of connecting factors the individual has in a matrix. The first consideration (as in Test 1) is whether the individual was resident in any of the three preceding tax years.