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Staying away from danger: temporary non-residence

By and large, UK taxes bite (or at least bite more heavily) on people who are resident in the UK than on people who aren’t.  This has tempted some to alleviate the burden of tax by leaving these shores, whether temporarily or permanently. But there are rules which counter any attempt to mitigate taxes by “temporary non-residence”: broadly, if your period of absence is only “temporary” your tax chickens come home to roost when you resume residence in the UK.  The rules originally applied only to Capital Gains Tax and were at TCGA 1992 s10A.  But since the introduction of the Statutory Residence Test the rules have been extended to other cases, including the receipt of certain dividends from close companies.  At the same time, a subtle change was made to the requirements for the period of absence.  It’s that change on which we focus here.

Under the old (CGT-only) rules, which applied where the year of departure was 2012/13 or earlier, a period of absence was “temporary” if the absence was for less than five tax years.  So a person who was UK resident for years up to and including 2009/10 (for example) and who resumed UK residence for 2015/16 will not have been “temporarily non-resident”.

Under the new (wider) rules, which apply where the year of departure is 2013/14 or later, a period of absence is “temporary” if the absence is for five years or less.  So a person who is UK resident for years up to and including 2015/16 (for example) and who resumes UK residence for 2021/22 will have been only “temporarily non-resident”.

However, the position is more complicated than that.  Sometimes a tax year is a “split year” for residence purposes – a taxpayer will be regarded as UK resident for part of it and non-resident for part.  So if the taxpayer returning in 2021/22 is able to apply “split year” treatment, all will be well: even if the “split year” has him non-resident only for the first day of the new tax year, resuming residence on 7 April 2021, that will be good enough, for his period of absence will then have been 6 April 2016 – 6 April 2021 which is (just) longer than five years.

Splitting a year should never be taken for granted: the rules are tightly drawn and not overly intuitive.  Careful attention to detail (and if necessary extending the absence by a further tax year) is necessary.

For more on tax residence planning, please consult your usual BKL contact or use our enquiry form.

David Whiscombe

Consultant

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