QUESTION: I have recently moved home to Northern Ireland after living overseas for the past four years to take up a job in Belfast. I have been joined by my wife who has never lived in the UK before. Do we need to be concerned about our overseas income being taxable in the UK?
ANSWER: Initially you will need to consider if you are UK tax resident. Taxpayers who are resident in the UK are generally taxable on their worldwide income and gains. The UK residency rules are complicated to say the least with a three-part statutory residence test; an automatic non-residence test, an automatic residence test and a sufficient ties test. While HMRC have published an online tool that gives an indicator of an individual’s residence position, ‘Get help working out your residence status’, it does not consider whether split year treatment is available.
By the sounds of your circumstances, you will be UK tax resident for tax year in which you arrived home. Although residence is usually determined for the tax year as a whole, it may be possible to split the year into periods of UK residence and non-residence if you come into the country or leave part way through the year and certain conditions are met. The are only eight circumstances in which spilt year treatment can be applied are:
- You lose UK residence by virtue of working abroad,
- You are joining partner overseas where they lose their UK residence by virtue of working abroad,
- You leave the UK and no longer have a home in the UK,
- You start to have a home in the UK and have no home overseas,
- You start to work in the UK,
- You come to the UK after ceasing work abroad,
- You accompany your partner to the UK where your partner has ceased working abroad, or
- You start to have a home in the UK, which continues throughout the following tax year.
Where the tax year is split between periods of residence and non-residence, the amount of foreign income and gains charged to tax in the UK is calculated based on if they occur during the period of residence. The UK income arising during the non-resident period is still taxable in the UK.
Since you are returning to the UK after an absence of less than five years, you will also need to factor in the “temporary non-residence” rules. These are tax rules that could mean some of your worldwide income and gains that arose while you were overseas is taxable in the UK. If your only income while you were overseas was from your employer, it is important to note that wages and other employment income is not affected by the temporary non-residence rules.
To reiterate the above, taxpayers who are resident in the UK are generally taxable on their worldwide income and gains. However, there is an exception for UK residents who are not domiciled or deemed domiciled in the UK, they are able to exclude their foreign income and gains from their UK tax calculation if they want to claim the remittance basis.
Under the remittance basis, foreign income and gains are only taxed in the UK when brought here. However, the longer a non-domiciled individual resides in the UK, the more complicated the remittance basis becomes as the “remittance basis charge” comes into force as well as “deemed domiciled”. Without understanding your wife’s family circumstances and assets outside of the UK, I am unable to comment whether making a remittance basis claim would be the right course of action for her.
The statutory residence tax rules are highly complex, so it’s important to consult a tax adviser so you can talk through each of the rules in detail to ensure you are compliant and aren’t paying more tax than necessary.
:: KellyAnne Murtagh (k.murtagh@fpmaab.com) is senior tax manager at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
