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Tax residency and understanding what is a home?

By admin
25 Aug 2023
Accounts & Compliance

In the past we have published articles covering how an individual is determined to be either a UK or non-UK resident for tax purposes (link) and (link). However, the well-publicised trial of Shakira (world famous music artist) has brought tax residency once again into the public interest and moreover the question of what classifies as a home?

The Spanish authorities are pursuing Shakira over alleged tax fraud. Their argument is that she spent 183 days living in the  country – which would qualify her as a Spanish tax resident and thus, by claiming she is non-Spanish resident, she has avoided paying around €14.5 million worth of taxes, for which she could face 8 years imprisonment.

As improvements are made to travel networks and as technology advances to make working remotely more easily accessible, people are spending more and more time not working/living in the UK. Your residency will have tax implications and now with the help of statutory residency tests, planning your residence position and future liabilities has become much easier.

Whilst you may believe that the area of residency would be a black and white matter, as with all legislation, there are nuances and oftentimes differing interpretations.

Residency Test

Since 06 April 2013, the use of Statutory Residence Tests is how we determine whether an individual is a UK resident (or not) for tax purposes in a given tax year.  The test is made up of three parts:

  • the automatic overseas tests;
  • the automatic UK tests; and
  • the sufficient ties test.

Throughout this process, the question of where your home is will come up as to help determine the days spent both abroad and in the UK but also to help establish where an individual has ties to. However, this raises the question of ‘what is a home?’ which brings us to the subject of this article:

HMRC define a home as:

A building, or part of a building, a vehicle, vessel or structure of any kind which is used as a home by an individual. It will be somewhere which an individual uses with a sufficient degree of permanence or stability to count as a home.

Whilst this is rather broad definition, the keys points outlined in the legislation are that:

  • A place must be capable of being used as a home, even if it is temporarily unavailable
  • An individual must actually use it as their home

HMRC will look at all facts and circumstances of a taxpayer’s situation including – electoral role, doctors/dentist registration, social connections, utilities, banks, subscriptions etc.  Whilst no one thing with prove a property is a “home” on its own, HMRC will build a picture from relevant facts.

An individual could own and reside in a Motor Home whilst traveling the UK for different contracts and work arrangements. As this Motor Home stores their personal belongings and the individual sleeps and spend their off-work time in there. HMRC would determine this as a home even though it is not in a fixed position.

Another example would be if an individual owns a home in the UK but suddenly has to move abroad and live with a family members due to poor health, they have no idea of when they will return so the property remains vacant while they are overseas. HMRC would class both the UK and overseas property as the individuals home despite the individual being overseas 100% of their time.

If the residency status of an individual is misunderstood this could result in double taxation  Whilst most double tax agreements contain provisions relating to residency and which country has priority i.e. the tie breaker clause, there may be certain situations where they are subject to tax of certain income or gains in the UK which may go unreported. This is one of the reasons that understanding your residency and how it can affect your tax liability is vital and failure to do so can result in fines or criminal prosecution.

If you would like to discuss your residency and/or domicile status and how this may affect your UK tax liability, or if you are worried you may have made a mistake in the past, please do not hesitate to contact us.

For further information or would like to speak to an residency specialist ….Contact a member of our team here!

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