Non-resident tax – a useful summary of tax treatments

Date: June 14, 2024

If you are non-resident tax can be an issue. You might want to be non-resident for tax purposes as this can give many tax advantages. Those who are non-resident for Income Tax and Capital Gains may assume that they are a non-resident for other taxes but this is not the case. Afterall, this is tax we are talking about, which is complicated and can also often be irrational.

The UK tax system has built up over time with residency definitions developing independently based on historical contexts, legal precedents, and changing economic conditions. Due to the different definitions, an individual could (in theory) be non-UK resident for Income Tax, Capital Gains Tax and Stamp Duty Land Tax, but a UK resident for VAT, National Insurance, Withholding Tax and the Non-Resident Landlord Scheme. They might also be domiciled in the UK for Inheritance Tax purposes. Some of the definitions of tax residency are below:

Income Tax and Capital Gains Tax

This goes by the Statutory Residency test, which has Automatic Overseas tests, Automatic UK tests, and a Sufficient Ties test. Note that the UK test can be overridden by a Double Tax Treaty, meaning you can be UK resident under domestic law but non-resident by virtue of a Treaty.

National Insurance Contributions and non-resident tax status

Non-residency is where you are ‘ordinarily resident’ outside the UK. This is not defined in the legislation but there is case law which assists in interpreting the definition. Your residency is where you have a settled and regular mode of life, and where you live apart from temporary/occasional absences. Although the need to use this definition can be overridden by Bilateral Social Security Agreements.

Stamp Duty Land Tax

Non-residency occurs when you spend fewer than 183 days in the UK in any continuous period of 365 days beginning 364 days before and ending 365 days after the transaction occurs.

Withholding Tax and the Non-resident Landlord Scheme

You are non-resident if your ‘usual place of abode’ is outside the UK.

Inheritance Tax

This is not actually based on residency (currently) but on a closely linked concept called ‘domicile’. Massively simplifying, you can be non-UK domicile and therefore not subject to Inheritance Tax where you have a ‘voluntary residence as an inhabitant’ overseas and a ‘settled intention to permanently reside’ there.

Non-resident tax and VAT

You are non-resident if your ‘usual place of residence’ is overseas. Again, this is not defined in legislation but there is a raft of case law to assist.

Do we really need all these separate definitions? This could have been something for the Office of Tax Simplification (OT S) to look at. And this might have been, if it hadn’t actually been abolished back in 2022.

Alexander & Co – advice on non resident tax status

To talk to one of our specialist international tax advisors to see how we can assist you, email info@alexander.co.uk. Alternatively, you can complete our online enquiry form and a member of our team will be in touch.