The UK Government's tax department (the HMRC), has recently released a consultation paper, The Statutory Definition of Tax Residence, which outlines recommendations for new tax laws concerning British residency.
A number of compelling elements surfaced from the paper. One of the most interesting points alludes to the future possibility of being a tax resident in more than one country, which can therefore imply tax liability in more than one country.
This clearly has consequences for those individuals who think they are not a UK resident but will be deemed so in the new rules, resulting in unexpected tax.
Previously, the HMRC-issued guidance notes and court case presidencies formed the basis of residency rules in the UK. The recent consultation paper suggests a more rigid, pre-defined system is enforced. This will at least bring an end to any element of uncertainty that used to exist.
Most British expatriates living in the UAE are likely to be classified as a ‘non-UK resident' due to having a full-time occupation (working at least 35 hours per week) here.
However, many Brits in the UAE may still be split between living in the UK and the UAE, and it is this group in particular that needs to pay close attention to the possibly changing rules and to perhaps start planning for what could be major lifestyle changes or unexpected tax bills.
Resident types
The proposed UK Tax Residence will define three resident types: conclusive non-residence, conclusive residence and lastly connecting factors. A distinction will be also be made between: Arrivers — defined as individuals who were not UK resident in all of the previous three tax years, and Leavers — defined as individuals who were resident in one or more of the previous three tax years.
When a UK resident leaves the UK for the UAE, they would be required to scale back their ties to the UK, spend far less time in the UK or a combination of the two, before they can relinquish UK tax residence.
An individual will be conclusively considered a non-UK resident if they fall under any of the following conditions including: they were not a resident in the UK in all of the previous three tax years and they are present in the UK for fewer than 45 days in the current tax year, or were resident in the UK in one or more of the previous three tax years and they are present in the UK for fewer than 10 days in the current tax year, or have left the UK to carry out full-time work abroad, provided that they are present in the UK for fewer than 90 days in the tax year, and no more than 20 days are spent working in the UK in the tax year.
An individual that does not fall within the above definitions, they may still be a non-UK resident within the new rules and in this instance, the individual will need to consider the second set of definitions.
For example, if you are present in the UK for more than six months in a tax year or carry out full-time work in the UK, then you will more than likely be UK resident.
Otherwise, if you only have one home and that home is in the UK, or you have two or more homes and all of which are in the UK, then this could also make you a resident.
Connections
The HMRC has established an additional body of rules which determines the connection factors. It states that the more time you spend in the UK, the less ‘connections' (such as accommodation and family) you are allowed to have.
Meanwhile, in the proposed system, the HMRC could also be taking note if the time spent in the UK is more than any other country, and amounts to more than 90 days in either of the previous two years, as these factors are deemed to give a strong indication of where a person's life is.
It is important to note that every country is slightly different. For instance, the US taxes its citizens wherever they live, whilst other countries base their legislation on where the centre of an individual's economic interests lie.
World-wide earnings
Most countries will seek to tax an individual on their world-wide earnings, if they become resident and will only tax non-residents on income received in that country.
With the tax rates in the UK being so high, if you are treated as a UK resident, you may also be subject to tax on your world-wide income. This could negatively affect the wealth of a large proportion of British expatriates here in the UAE.
That is why it is of paramount importance that those individuals take action now in order to remain non-UK residents and enjoy the tax benefits on offer in the UAE.
The writer is Regional Director, PIC de Vere. Opinion expressed here is personal and do not reflect the view of Gulf News.
