My client is thinking of returning to the UK after a period overseas. What sorts of UK tax issues do I need to consider with regards to residence, domicile and the realisation of assets?
Name and address supplied
The first issue you will need to be clear on is that the person has been non-UK resident for the period. A number of recent cases have highlighted the need for those who are leaving the UK – or returning after a period of abroad – to ensure there is or was a distinct break from the pattern of their life in the UK to sever their UK residence.
The rules relating to residence are complicated and are a combination of statute, common law and HMRC practice set out in the guidance booklet IR20. A person who spends 183 days or more in the UK in a tax year will be UK-resident for that tax year. UK tax years run from 6 April to the following 5 April.
Being present
An individual who visits the UK on a regular basis and spends on average 91 days or more in a tax year over a period of four years will be treated as UK resident from the beginning of the fifth year. But if the person intends making visits of 91 days or more on average in the first tax year and the next three years, they will be treated as resident in the UK from the beginning of the tax year of their first visit if the intention is carried out.
These day-counting rules will not necessarily apply if the person has previously been resident in the UK as they will need to show that they have left and there is a distinct break from the UK and that any days spent in the UK are for a temporary purpose.
In transit
Following the Finance Act 2008, a day is counted if the individual is in the UK at the end of the day (midnight). While in transit between two places outside the UK, a person is
not treated as being present in the UK provided the individual does not undertake any activity not connected to their journey while in the UK. This will be strictly construed by HMRC but it will remain to be seen how it is monitored in practice.
For those who have left the UK, care needs to be taken regarding the treatment on return to the UK, particularly if absence has been for less than five years and the person had been UK resident for at least four of the seven tax years prior to the tax year of departure.
This is because a person returning to the UK after a period of non- residence of less than five years will be taxed to capital gains on the gains that have arisen while they have been non-resident on disposals of assets held prior to departure as if the gain arose in the year of return.
When the cat is away
This does not apply to gains made on disposals of assets bought and sold during the period of UK absence even if less than five years. If the person claims non-domicile status and the remittance basis (if relevant), they will not be taxed to capital gains on the gain made on foreign assets owned prior to departure unless such gains are remitted into the UK either during the period of non residence or on return.
If the individual can claim non-domiciled status and the remittance basis, and has remitted foreign income arising in previous periods of UK residence whilst non resident for less than five years (but not in years before 2008-09), they will be taxed on those income remittances.
Subject to these considerations, an individual may want to crystallise gains while non-resident to ensure they are outside charge once they take up residence in the UK. Clearly, careful planning and investment considerations will need to be undertaken prior to return.
