Under UK law, residence by virtue of physical presence is established if you spend more than 182 days in the UK during a tax year (which in the UK runs from 6 April to 5 April. Most countries’ tax years are based on calendar years). You will also be deemed to be UK resident if you spend an average of more than 90 days a year in the UK over any four-year period.
HMRC have traditionally regarded (as set out in their guidance notes on the subject) the actual day of arrival in the UK and likewise the day of departure from the UK as being days on which a person is not in the UK. This would allow someone who came to the UK on a Monday and left on the following Friday to be regarded as being in the UK for tax purposes for only three days. In practice, this allowed people to spend quite substantial periods in the UK without becoming a UK tax resident and it has been particularly beneficial to businesspeople with significant interests here.
However, a recent case involving a millionaire tax exile, who travelled frequently to the UK in connection with his business, has thrown into doubt taxpayers’ ability to rely on this approach. HMRC considered (by counting the number of midnights he spent in the UK) that several of his ‘arrival and departure days’ were days he was present in the UK. Accordingly, he was deemed to be UK resident for income tax purposes. This decision was confirmed by the Special Commissioner.
Where your legal residence is questionable, the extent to which you have maintained ties (e.g. family ties, membership of clubs or organisations) with the UK will be of importance.
Being non-resident in the UK can have significant tax advantages, especially as regards tax on earned income, on capital gains arising outside the UK and on investment income.
It has recently been reported (but as yet not confirmed) that HMRC are not intending to apply this new reasoning in all cases, as the circumstances surrounding the decision are quite untypical.
It is likely anyway that the decision will be appealed. However, if HMRC make this decision ‘stick’, the scope for having a working base in the UK whilst being non-UK resident will be significantly diminished.