What is my residence?

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residence

Your ‘residence’ is where you spend your time for tax purposes. It is not the same as nationality, citizenship or domicile.

It’s important to know your residence status if you generate income from abroad, as it will affect how much tax you need to pay for that tax year.

The UK tax year runs from 6 April to the following 5 April. If you are not a UK resident, you will only need to pay UK tax on your UK income and not on your foreign income.

If you are UK resident, you need to pay tax on all your income, whether from UK or abroad. There are, however, special rules if your permanent home – otherwise known as your ‘domicile’ – is abroad.

Your residence is determined by the Statutory Residence Test, which is made up of four parts:

1. How much time have you spent in the UK in a tax year?

You are automatically resident in the UK if, within the tax year:

  • you spent 183 or more days in the UK; or
  • you have a home in the UK that was available for at least one consecutive period of 91 days (with at least 30 of these days falling within the tax year). If you have an overseas home, you must have spent less than 30 days there during the tax year.
  • You don’t work on a ship or plane, and you do work full time with no significant breaks for 12 months. At least one working day must fall in the tax year and more than 75% of your work days in the year are UK working days).

You are automatically non-resident in the UK if, within the tax year:

  • you were in the UK for less than 16 days; or
  • you worked abroad full time (an average of 35 hours a week) with no significant breaks, and were in the UK for less than 91 days, with fewer than 30 of those days spent working.

Make sure you keep a record of trips back to the UK, and any days in the tax year where you spend more than three hours working in the UK.

What if I move during the year?

If you move in to, or out of, the UK, the tax year is usually split into a non-resident part and a resident part. This ‘split-year treatment’ means you only pay UK tax on foreign income based on the time you were living in the UK.

2. Leaving the UK (Automatic Overseas Test)

The Automatic Overseas Test will apply if you leave the UK part way through a tax year, either to:

  • Work overseas full time
  • Accompany a partner who has started work abroad full time
  • Live abroad and cease to have a home in the UK (if you had a UK home, you need to have given it up at the start of the year) and spend less than 15 days in the UK that tax year.

3. Arriving in the UK (Automatic Residence Test)

The Automatic Residence Test will apply if you:

  • Start to have your only home in the UK
  • Start full time work in the UK
  • Return to the UK after a period of work abroad
  • Accompany a partner who has returned to the UK following work abroad

4. Sufficient Ties Test

If you’re no longer UK resident, but don’t qualify under the Statutory Residence Test, the Sufficient Ties Test may help. This looks at how many days you have spent in the UK during the year, your permanent status re your work and home, the 90-day rule and your country of residence.

Leaving – and returning

If you have left the UK and returned in less than five years, you are treated as temporary non-resident, meaning any gains realised during that period are taxable in the year you return.

Need help?

As you can see, this can all get quite complicated. If you are in any doubt about your residence, seek advice from a qualified professional

Divorce and the effect on wills in Scotland

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divorce, will

Finalising a divorce is a vital time to bring your personal affairs up to date – particularly your will, power of attorney and potentially your title deeds.

Many people assume that divorce will automatically invalidate a will, power of attorney or Survivorship Destination, but that is only part of the story.

Although the law has tried to accommodate the likelihood that people will not wish their ex-spouse or civil partner to benefit from their estate, the legal treatment of existing arrangements can potentially give rise to a further set of complications, which can easily be avoided by carrying out a review with a qualified advisor.

Changes to Scots Law

Under Scots Law prior to November 2016, a divorce had no impact on a will, but recognition of the change in families and relationships has resulted in recent changes to modernise Scots Law and bring it more in line with other parts of the UK. Now, like the rest of the UK, an ex-spouse or civil partner is treated as though they have died before the granter of the will. In other words, the will is not automatically revoked but instead it is read as it stands, but ‘missing out’ the former spouse or civil partner.

Why do you need to review your will?

Although a step in the right direction, this can leave your will in a bit of a mess, for example:

  • an appointment of your former spouse or civil partner as executor, trustee or guardian of children will fail, unless the will specifically states otherwise;
  • if the will does not provide for an alternative executor, an appropriate person (usually another beneficiary) will have to apply to the Court so that the estate can be administered;
  • if you have made legacies solely to your ex-spouse or civil partner, these will fail and they will fall into the residue of estate; where there is no substitute beneficiary, the estate may be intestate and will have to be claimed by eligible family members.

As a result, you will need to undertake a review of your personal affairs on divorce or you run the risk of a complex estate, which is not administered as you would have wished.

Dara Richards is a Private Client Associate, Notary Public and Solicitor for the Elderly at Ledingham Chalmer

Why is HMRC investigating my deceased relative’s tax affairs?

Posted on By Louise Polcaro
tax,investigation

When a person dies, their relatives have to deal with the process of obtaining probate, filing tax returns and distributing any assets in accordance with either intestacy rules, the deceased’s wishes or any subsequent deeds of variation. At what can be a difficult time, it can sometimes come as a shock if HMRC then opens an enquiry or investigation into your deceased relative’s UK tax affairs.

Why are HMRC investigating?

Such enquiries or investigations may arise if the deceased’s assets, as disclosed on the inheritance tax form, exceed those which HMRC expected, based on its knowledge of the deceased’s income and gains. In these circumstances, HMRC is likely to check to ensure the deceased properly declared all their income and gains in their lifetime.

In addition, HMRC may already be conducting enquiries into the deceased’s personal tax position, for example if they used a tax avoidance arrangement during their lifetime.

HMRC holds lots of data on people’s income and assets in its computer system, CONNECT. If the deceased’s inheritance tax return looks incomplete then CONNECT may identify this and trigger an investigation.

What are the timescales?

Where no self-assessment enquiries are open, HMRC has four years after the end of the tax year in which the deceased passed away to assess any income tax or capital gains tax liabilities. However HMRC may assess six years’ tax if the deceased or anyone acting for them before their death made careless or deliberate errors or omissions.

HMRC may use its information powers to obtain the data necessary to quantify and assess this tax and, if necessary, any additional inheritance tax liabilities plus late payment interest.

Will there be penalties?

HMRC is unable to issue penalties for errors made by the deceased during their lifetime. However if the returns it is investigating were submitted after the deceased’s death then penalties may be due.

What to do if you notice any errors

If an executor realises that the deceased’s tax returns and/or an inheritance tax return is incorrect then it is advisable to obtain advice from a specialist so that an appropriate disclosure is made to HMRC quickly.

A disclosure will inform HMRC of the error or omission in the return(s) and quantify the tax due. Correcting issues swiftly should minimise any penalties and bring peace of mind to those due to inherit assets.

Advice should be sought on the best method to make a disclosure, particularly where it may affect the UK tax affairs of a trust or person who is still alive, as well as the deceased.

Helen Adams TEP is Tax Principal at BDO LLP in London, UK

What is probate?

Posted on By Louise Polcaro
will, probate

In England and Wales, if someone has died, their next of kin, or those named in the will, need to obtain a legal document called a grant of representation, which gives them the legal right to deal with any property, money and possessions. This is known as probate.

The process and terminology differ across the UK – see ‘Elsewhere in the UK’ below.

If they left a will

If the deceased left a valid will, this will explain where their possessions, money and property should go. You will need to locate the original will, which might be stored in the person’s home, bank or with their solicitor or legal advisor.

If there is a will, contact the executors named, who will be responsible for obtaining the grant of probate. If you are an executor yourself, you’ll need to complete a probate application form and inheritance tax form which can be submitted online to the central probate registry.

You can either do this yourself, or instruct a qualified advisor to act on your behalf.

When the grant of probate is obtained, the assets may be sold, resulting in a lump sum to go to the beneficiaries, i.e. those named in the will. Before the estate is distributed, all debts and expenses should be paid. If inheritance tax is due, this will also need to be paid.

If no will was left

If there is no will, the deceased has died ‘intestate.’ The next of kin, or if there is none, the legal advisor or person appointed by the court, will need to apply for a ‘Grant of Letters of Administration’ before the estate can be distributed. If the grant is given, they are known as ‘administrators’ of the estate.

The deceased’s spouse or civil partner will usually inherit the estate in this case. However if there is none, a set of rules known as the rules of intestacy will determine who is to benefit from the estate.

Probate fees

In England and Wales, there is usually no need to apply for probate if the estate is worth less than £5,000. There is an application fee of £155 for estates over the £5,000 threshold, with a £60 fee added if you apply yourself rather than via a solicitor.

Elsewhere in the UK

The legal document is called ‘confirmation’ in Scotland and ‘grant of probate’ in Northern Ireland and the process in each country differs slightly from that in England and Wales. You can find out more here:

The threshold in Northern Ireland is £10,000, with an application fee of £261 for estates over the threshold. An extra £65 personal application fee is charged if you apply for the grant yourself, without using a solicitor.

In Scotland, for ‘small’ estates with a gross value of (currently) £36,000 or less, executors are entitled to free assistance with obtaining confirmation from the local Sheriff Court. A fee is currently only charged for estates above £50,000, with £266 charged for estates between £50,000 and £250,000 and £532 charged for estates exceeding £250,000.