20th December 2013 by Simon Misiewicz
Are you earning money whilst you are living abroad?
Are you earning money from overseas?
The subject of UK and international tax is complex to say the least. As you would expect from having multiple countries tax you at the same time in some instances.
As such we have written a number of articles to help you along.
Part 1: Paying tax in the UK depends on where you live
Part 2: Rental income from property
Part 3: Capital Gains Tax (CGT), UK and international tax
Part 4: Domicile & leaving the UK
Part 5: Double Taxation Agreements (DTA) & IHT
Without further delay let us help you with the complex subject of UK and international tax.
Part 1: Paying tax in the UK depends on where you live
If you live in the UK for more than 183 days in the fiscal year (6th April to 5th April) then you will be deemed to be resident in the UK and will pay tax on all UK income and monies brought into the country (2).
Even if you’re in the UK for fewer than 183 days in a tax year, you might still be UK resident. If you come to the UK to live or work on a continuing basis you will be resident from your arrival.
Factors that affect your residence status include:
• whether you have previously been a UK resident
• where your family, property, business, work, and social connections are
• the pattern and purpose of your visits to the UK
• You are likely to be resident if, over a period of several years, your presence in the UK becomes part of the regular pattern of your life.
If you’re domiciled in the UK and are resident in the UK then you are taxed on the ‘arising basis’. This means you are taxed on both your (2):
• UK income and capital gains
• foreign income and capital gains
You will be taxed on any income that you have from foreign investments whether rental income or selling properties (3).
If you’re not domiciled in the UK and are resident in the UK and have foreign income and/or gains then you are taxed on (2):
• your UK income and capital gains
• your foreign income and gains, but you can choose to pay this either using the ‘remittance basis’ (only when you bring it into the UK) or on all of your worldwide income
The remittance basis is an alternative tax treatment available to people who are resident in the UK and who are either:
• not domiciled in the UK, or
• not ordinarily resident in the UK.
The remittance basis is relevant only if you have foreign income and/or gains. If you have foreign income and/or foreign capital gains and you are UK resident but not domiciled in the UK, you can choose to be taxed on the remittance basis. If you do so, you may have to pay a charge of £30,000 or £50,000, known as the remittance basis charge, for each tax year in which you use the remittance basis (5).
Example 1 (3)
Sarah is a British citizen who has lived in the UK most of her life. She has homes in London, California (USA) and France and has spent substantial amounts of time at her other homes or travelling on business. The opportunity arises for Sarah to travel more on business, especially in North America and she therefore spends less time in the UK and more time in her California home. Sarah’s partner and their children are based in the UK and the family spends the summer together in France. During the year ended 5 April 2010 Sarah is present in the UK at the end of 43 days, although she typically arrives in the UK in the morning and leaves in the evening so many of the days she is in the UK do not get counted for the 183 day test. Sarah’s ‘end of day’ counts for the years ended 5 April 2011, 5 April 2012 and 5 April 2013 are 85, 110 and 90 respectively. The average for the four years to 5 April 2013 is just under 82 days.
Although Sarah has been present in the UK at the end of the day for an average of less than three months during the four years under review, she has remained resident and ordinarily resident here. This is because her presence in the UK in all years shows a pattern indicating residence here and that such residence is ‘ordinary’ for her. There is nothing casual about her residence – Sarah has a home and family in the UK to which she returns whenever she wishes and her business allows. Sarah’s residence in the UK continues. Her presence in the UK is an integral part of the regular pattern of her life.
The precise amount of time that Sarah spends in the UK does not affect this fundamental point. Sarah has been and remains resident and ordinarily resident in the UK. It is possible that Sarah is resident in France or the USA for the purposes of French or US federal and state income taxes. This does not affect her residence in the UK. If she is dual resident for any period it might be necessary to decide where Sarah is treated as resident for the purposes of the relevant Double Taxation Agreement.
If you had £80,000 foreign income and/or gains in the tax year and you remitted £70,000 to the UK, your unremitted foreign income and/or gains for the tax year would be £10,000.
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