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The government’s plans for clearly establishing residence status could seriously hinder a ‘small but significant’ number of taxpayers, a leading tax expert has warned.
The document Statutory Definition of Tax Residence: a Consultation was published in mid-June, proposing that individuals not previously resident who spend fewer than 45 days a year in the UK will be considered to be non-resident; 183 days per annum will be the definitive amount of time a taxpayer will spend in the country to be considered to be always resident.
An official test of residence, set out in three parts and taking in such factors the location of the person’s main home, will help individuals establish their status.
George Bull, senior tax partner at Baker Tilly, highlighted an apparent catch that changes the way in which the availability of accommodation affects ordinary residence for UK tax purposes.
‘The proposed… test threatens to prejudice the interests of the small but significant group of individuals who are currently regarded as UK-resident but not ordinarily resident,’ he said.
‘At present it is necessary to take an overall view of all the facts of an individual’s circumstances and decide if they have sufficient connection with the UK to be said to be resident here. Availability of accommodation can be significant factor in this, but it is not conclusive.’
In its current state, the test, which was launched in mid-June in a consultation document, would make the availability of accommodation in the UK conclusive of not only residence but also of ordinary residence, unless some accommodation was also retained overseas, claimed Mr Bull, meaning workers visiting the UK temporarily would risk being penalised by being taxed in this country on some or all their overseas income if, for example, they rented out their house in their home country.
The proposed new rule – due to come into force on 6 April 2012 – would automatically make such a person ordinarily resident in the UK, while a person who did not rent out his or her home property would not be.
There may also be consequences for employers: the costs to firms that cover a staff member’s additional taxes, which will be grossed up because the payment of tax itself is taxable, could be disproportionate, said Mr Bull.
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