What are the income tax overseas aspects related to taxpayer residence under the tax laws formation of UK?


10 Jan

There are certain special tax regulations for the individuals when they are not residing in UK for whole tax year or some part of it, either for their personal or business related work. You may have come across a guide to setting up a limited company but it is also important to have an understanding of the income tax regulations from every aspect. This blog will provide a detailed explanation of the overseas aspects of income tax in case of residence of the individual. The main discussion will be on the income tax scenario when an individual is residing within UK or in overseas country and how the residency test are conducted.

Individual with a Residence

There is a possibility that an individual may be both or either of the two: a resident or holding a domicile in the United Kingdom. Let’s consider the residence scenario of the individual.

Test of Statutory Residence 

It is important to know that an individual may not be residing in the UK automatically if he fulfills any one of the automatic overseas tests. In case if an individual meet any of the automatic UK tests and does not meet any of the automatic overseas tests, will automatically be considered as the resident of UK. There is also a case in which an individual will be considered as a resident of UK, even if he/she has not met any of the tests mentioned above but if he/she meets the test of sufficient ties.

There is a test which is set out by the statute for the determination that an individual is a resident of UK in the tax year or not.

The test’s operation is given as follows:

  • First, it is checked that if an individual satisfies any of the automatic overseas tests.
  • If yes, then he/she is simply not a resident of the UK. If no, then there is a need to check if the individual satisfies any of the automatic UK tests.
  • If yes, then he/she is a resident of the UK. If no, then there is another check that requires to confirm if the individual satisfies the test of sufficient ties
  • If yes, then he/she is a resident of UK and if no, then he/she does not reside in the UK.

Automatic Overseas Tests

The consideration of the automatic overseas tests should be done first. Through the automatic overseas tests, the treatment of an individual is done as a non-resident of the UK in a tax year if that particular individual:

  • Spends a total number of days in the UK which are below 16 in that tax year and was residing in the UK for one or more of the three preceding tax years (typically someone who is going to leave the UK); or
  • Spends a number of days in the UK which are below 46 in that tax year and was not residing in the UK for any of the three preceding tax years (typically someone who is coming the UK); or
  • Works abroad for full-time in that tax year and is not involved in spending more than 90 days in the UK during that particular tax year.

Automatic UK Tests

The automatic UK tests play their role when none of the automatic overseas tests are fulfilled.

The treatment of an individual is done as a resident by the automatic UK tests in a tax year if that individual:

  • Spends a total number of 30 or more days in the UK during the tax year and owns a home in the UK and no other home in a foreign country; or
  • Spend a number of days in the UK which are equal to 183 or above during that tax year; or
  • Works in UK for full-time whole year, out of which some of the period includes a portion of that tax year.

Tests of Sufficient UK Ties

The sufficient ties test becomes effective when an individual meet neither the automatic overseas tests nor the automatic UK tests.

The sufficient ties test makes the comparison of the number of days which are spent in the UK and the count of the connection factors of the individual or ties to the UK.

An individual who was not residing in the UK in any of the preceding three tax years (typically someone who is coming to the UK) must make the determination of whether any of the following ties is applicable:

  • Close family residing in the UK (such as spouse/civil partner, child below the age of 18);
  • Substantive work in UK (employment or self-employment) where a number of 40 days or above is considered as substantive;
  • Accommodation in the UK that is available for a number of at least 91 days in the tax year and in which the individual spends a minimum of one night during the tax year;
  • A number of more than 90 days spent in the UK in either or both of the preceding two tax years.

An individual who was a resident of UK in any of the preceding three tax years (typically someone who plans to leave the UK) should also make the determination of whether an additional tie is applicable, present in the UK at midnight for the same number of days or more in that tax year than in some other foreign country.

The way to find the UK residence status of an individual is shown in the table; this is accomplished by the comparison of number of days in the UK during a tax year and the number of ties in the UK.

Days spent in UK

Already a Resident

Not already a resident

Below 16

Automatically not a resident of the UK

Automatically not a resident of the UK

Between 16 and 45

Resident if UK ties are 4 or above

Automatically not a resident of the UK

Between 46 and 90

Resident if UK ties are 3 or above

Resident if UK ties are 4

Between 91 and 120

Resident if UK ties are 2 or above

Resident if UK ties are 3 or above

Between 121 and 182

Resident if UK ties are 1 or above

Resident if UK ties are 2 or above

183 or above

Automatically a resident of the UK

Automatically not a resident of the UK


Number of Days Spent in the UK

In general, if a taxpayer is present in the UK at the midnight (end of the day), that day is counted as a day which is spent in the UK by the taxpayer. However, it is not required by him/her to count the first 60 days in a tax year that he/she has spent in the UK because of the circumstances not under his/her control, for instance serious illness.

Relevant Examples

  • In the past, Henry was not residing in the UK prior to his arrival on April 6, 2013. During the 2013/14 tax year, he spent a total of 40 days in the UK. Henry was not working or employed in any register ltd UK company for whole this period. Henry is now arriving in the UK. He fulfills one of the automatic overseas tests as he spent less than 46 days in the UK in the year of 2013/14 and was not a resident of the UK for any of the preceding three tax years. Hence, Henry is not a resident of UK for this 2013/14 tax year.
  • Consider the example of Emma who was not a resident of the UK in the past, i.e. prior to her arrival on April 6, 2013. In UK, she spent a total of 60 days during the tax year 2013/14. She did not work during that whole year of 2013/14. Her only home during this period is in the UK. Now, Emma comes to the UK. She does not meet any of the automatic overseas tests as she spends 30 days or above in the UK in the year of 2013/14 and her only home is present in the UK. Hence, Emma is a resident of UK for the tax year, i.e. 2013/14.
  • Consider the example of Sophia who was always a resident of the UK prior to the tax year 2013/14 and has spent a number of above 90 days in the UK in every tax year. Sophia did not work in any company formation of UK in 2013/14. She is married to a man named Walter who is a resident of the UK for 2013/14. They are the owners of a house in the UK that they can avail for the entire tax year. On April 6, 2013, Sophia purchased a foreign apartment where she stayed 285 days during the year of 2013/14. The remaining days left was 80 days which they spent in the house situated in UK. Now, Sophia is leaving UK. She does not meet any of the automatic overseas tests as she spends a number of 16 days or above in the UK and does not work abroad. She does not meet any of the automatic UK tests due to the reason that she stayed below 183 days in the UK, has a home abroad and has not worked in any register ltd UK company or business formation of Great Britain. Hence, the sufficient ties test finds its relevance here. Sophia has three ties in the UK including close family (her husband); available accommodation in the UK in which she spent a minimum of one night in the tax year; more than a number of 90 days spent in the UK during the preceding two tax years. The days spent in UK are a total between 46 and 90 for the years of 2013/14. Hence, these three ties are enough to count her as a resident of UK in 2013/14.
  • Now consider another example of Mickel who has not been residing in the UK in any tax year before 2013/14. Not more than 90 days he has stayed in UK before 2013/14. On April 6 2013, he arrived in the UK and purchased a house and stayed for 160 days during the tax year 2013/14. Mickel also own a house abroad in which he spent the remaining tax year 2013/14. There was no work done in company formation of Great Britain by Mickel in 2013/14 and his close family are not a resident of UK in the year of 2013/14. Now Mickel comes to the UK. He does not meet any of the automatic overseas tests as he has spent a number of 46 days or above in the UK and is not working abroad. He does not meet any of the automatic UK tests as he spent less than 183 days in the UK, has a home abroad and does not work in the UK. Hence, the relevance of sufficient ties test is found in this case. A number of days between 121 and 182 are being spent by Mickel in the UK during 2013 and 2014 and hence, it would be required by him to provide two UK ties in order to be considered a resident of UK for that particular tax year. As Mickel possess one tie with the UK in 2013/14 (accommodation available), hence he is not declared to be a resident of the UK for 2013/14 tax year.

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