Knowing your tax residence status is super important if you work abroad, but still have some ties to the UK. For instance, if you left the UK recently, returned after an absence, or have residency here and visit often.

This status indicates whether you’ll pay UK taxes on any foreign income you make. Failing to declare or pay tax on overseas income could lead to penalties and a nasty fine – even if you thought you wouldn’t need to!

The ‘statutory residence test’ was introduced by HMRC to help individuals with a connection to the UK determine their status for paying tax. We’ll discuss what your residency status means, and how you can take the test to find out whether your foreign income is subject to UK taxes.

How do I work out my tax residence status?

When it comes to your tax status, you’ll fall into two categories; either a UK resident, or a non-UK resident.

Finding out which one you are largely depends on how many days you spend in the UK during the tax year in question.

You’re classed as a UK resident if you:

• Don’t meet any automatic overseas test
• And you meet at least one automatic UK test or sufficient ties test

If you don’t meet these conditions (both of them), you’ll be considered non-resident in the UK for tax purposes.

How the UK automatic test works

You’ll be classed as a UK resident if you fit the following criteria when you take the test:

• You’ve spent at least 183 days in the UK for that tax year
• Your only home was in the UK for at least 91 days (in a row) and you either stayed or visited it for at least 30 days in that tax year
• You worked full time in the UK for any period that year, one of those days being the tax year you’re checking

How the overseas test works

If you’re considered non-resident for tax purposes, you won’t need to pay any UK tax on your foreign income.

This is likely the case if you:

• Spend fewer than 16 days in the UK (although if you haven’t been a UK resident for the past 3 tax years, you need to spend fewer than 46 days)
• You work abroad, averaging at least 35 hours per week (full-time) and spend less than 91 days in the UK (with no more than 30 of those days being working days)

If you don’t meet either of the automatic UK or overseas tests, your residency will depend on the number of UK ties you have. This is basically how many connections you have in the UK (family, work, accommodation ties, etc). This is determined via a ‘sufficient ties test.’

What happens if I’m classed as a UK resident?

If you’re a UK resident, you’ll pay UK taxes on your worldwide income unless your domicile (your permanent home) is considered to be abroad.

You’ll pay UK tax on income such as:

• Any foreign investments (as well as any savings interest)
• Rental income you receive on an overseas property
• Income from any overseas pension you may hold
• The wages you earn abroad

Does my tax residency status change every tax year?

Your tax residency status can change from one year to the next, depending on your situation. For example, your job could change, meaning you spend more (or less) time in the UK. Your ‘ties’ to the UK could change, for instance your family move to the UK, or you get married, separate, or have children.

It’s important you check your residency status each tax year, especially if something has changed since you last checked.

If you’ve paid tax on your foreign income already

If you’ve already paid tax on your foreign income, you can claim Foreign Tax Credit relief when you report your overseas income on your Self Assessment tax return. The relief you receive depends on the country your income has come from, and it’s double-taxation agreement with the UK. If there isn’t an agreement in place, you’ll usually still receive relief, unless the foreign tax doesn’t correspond to either UK Income Tax or Capital Gains Tax.

You can apply for tax relief before you get taxed on any foreign income, rather than getting taxed twice!

Do I need help completing the statutory residence test?

HMRC’s online tool should make the process of working out whether you’re a UK resident or not much more straightforward. You’ll need to select the tax year you’re referring to, and answer a range of questions, such as how many days you’ve spent in the UK that tax year, (and how many of those days you worked). Other questions include whether you had a home in the UK during this period, and how long you spent in that home.

 
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