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UK residence

UK residence is used to determine whether income and capital gains are subject to UK tax. There is a statutory residence test (SRT) for individuals which will determine if someone is UK resident for a particular tax year.

Typically someone will either be UK resident or non-resident for the complete tax year. However, the split year treatment can apply for example, if someone arrives or leaves the UK permanently during the tax year.

An individual will always be UK resident if they spend 183 days or more in the UK in the relevant tax year. The SRT rules are complex but give certainty in relation to someone’s UK tax status. In addition to the number days spent in the UK they also include a number of factors which connect an individual to the UK.

HMRC guidance on SRT can be found here.

Dual residence

It is possible to be resident for tax purposes in more than one country at the same time. This is known as dual residence.

Someone who is resident in the UK and another country may consequently be liable to tax on worldwide income in both countries. However double taxation agreements may prevent you from being taxed twice on the same income.

Double taxation agreements (DTAs)

The UK has DTAs with many countries to prevent dual taxation on the same income and gains. DTAs specify which country has taxing rights over an individual, and, if they both have such rights, which one takes priority.

The agreements may set down different rules for different types of income. They may also agree to exempt some income or gains from tax or allow a set-off of tax paid in one country against tax due in the other.

Income and capital gains

An individuals’ UK residence position impacts on how tax in the UK is applied.

UK resident individuals are taxed on the arising basis. Individuals who have become UK resident in the tax year for the first time or following 10 years of non-UK residence, have a choice between being taxed on the arising basis or making a claim under the Foreign Income and Gains (FIG) regime. 

The table summarises the UK tax position:

Arising basis

UK Resident and domiciled individuals are taxed on what is known as the ‘arising basis’. Arising basis of taxation means UK tax is assessed on all worldwide income and gains as they arise.

An individual will retain their personal allowance for income tax and annual exempt amount for capital gains.

The Foreign Income and Gains Regime (FIG)

Individuals who become UK resident having been non-resident for more than 10 tax years can elect to be taxed under the FIG regime. The FIG regime allow individuals to not pay UK tax on their overseas income and gains for the first 4 tax years of UK residency even if they are brought to the UK. They will continue to pay tax on their UK income and gains in the normal way.

The claim for overseas income and gains not to be taxed in the UK is made via self-assessment and can be for foreign income only, foreign gains only, or both income and gains. A tax return must be submitted for each year in which FIG treatment is to apply.

If no claim is made these individuals will automatically be taxed in the UK on worldwide income and gains each tax year under the ‘arising basis’.

Individuals that make any claim under the FIG regime will lose their UK personal allowance, along with marriage allowance or Blind Persons allowance if applicable. They will also be unable to claim the CGT annual exempt amount.

The rules are complex. HMRC guidance on the FIG can be found here.

Temporary non-residence

There is anti-avoidance legislation to prevent someone becoming non-UK resident for a short period, realising a gain which would not be subject to UK CGT, and then returning to the UK. An individual who becomes non-UK resident will still be liable to UK CGT if:

• the asset disposed of was owned before the person departed from the UK, and
• the person was UK resident for any part of at least four out of seven years before leaving the UK, and
• the individual becomes UK resident before five complete tax years have elapsed since the date of departure.

These rules do not apply to assets that are bought and sold whilst not UK resident. So investments bought after UK residence ceased, and sold whilst non-resident, will not be taxed on return to the UK after a period of temporary non-residence. Similar temporary non-residence rules also apply to income which has an irregular nature. This is to prevent chargeable gains from investment bonds and pension income withdrawn using pension freedoms from being taken during a period of short-term non-residence to escape UK tax. These forms of income would also be taxable upon return to the UK within five tax years.

Residential property and non-residents

Non-resident capital gains tax (NRCGT) applies to gains arising on the disposal of UK residential property by non-UK resident individuals.

Only gains accruing after 5 April 2015 are chargeable. Where property was owned before this date the acquisition cost is rebased to the market value on 5 April 2015.

Alternatively, taxpayers have the option either to time apportion the gain over the period of ownership or compute the gain or loss over the whole ownership period if that is beneficial.

Inheritance tax

Length of UK residency directly impacts the scope of UK IHT on an individual's worldwide assets.

UK residents who have been resident in the UK for more than 10 out of the previous 20 tax years are considered long-term residents for IHT. This has replaced domicile as the determining factor for UK IHT.

In broad terms, the following applies relevant to the length of time someone has been resident in the UK.

When a long-term resident leaves the UK their worldwide assets will continue to be subject to UK IHT for a number of years. The number of years these assets continue to be in scope for UK IHT depends on how long they were UK resident.

Gifts to a spouse who is not a long-term resident

When an individual who is liable to UK IHT on their worldwide assets makes a gift to their spouse or civil partner, who is only subject to UK IHT on their UK assets due to their length of residence, the IHT spouse/civil partner exemption is limited.

Alternatively, the spouse who is not a UK long term resident can elect to be treated as a long-term resident for IHT purposes. This election allows them to use an unlimited spouse exemption but will mean that their worldwide assets are subject to UK IHT.

Limited spouse exemption

The limited exemption is a lifetime cumulative amount, equal to the standard IHT nil rate band.

Unlike PETs and CLTs which fallout of the cumulative total for IHT after seven years, gifts to a short-term resident spouse will continue to use up the exemption whenever they were made. Gifts which exceed the lifetime exemption will be PETs.

The limited spouse exemption does not apply if:

• both the transferor and their spouse or civil partner are not UK long term resident. In this situation, each would only be subject to IHT on their UK based assets and the spouse/civil partner exemption would be unlimited in respect of the transfer of any UK assets, or
• the transferor is not long-term resident, but the spouse or civil partner is long term UK resident. Again, the transferor in this situation would only be subject to IHT on their UK based assets, for which they would have an unlimited spouse/civil partner exemption.

Long-term resident election

A spouse/civil partner who is not a long-term UK resident, can make an election to be treated as long term resident. This would entitle them to the full unlimited spousal exemption. However, the cost to the short-term resident spouse would be that the election would bring their overseas assets into the UK IHT net.  It's also possible for the short-term spouse to make the election in the two years after the death of the long term spouse.

Overview of rules prior to 6 April 2025

Domicile is no longer taken into consideration for UK taxation however it was important factor for the rules prior to 6 April 2025.

Remittance Basis

Prior to 6 April 2025, individuals who were not UK domiciled or deemed domiciled were able to elect to use the remittance basis. This would mean that overseas income and gains would not be taxable until they were remitted to the UK.

Once an individual had been resident for 7/9 tax years, there was a tax charge of £30,000 to use the remittance basis, which increases to £60,000 once resident for 12/15 tax years.

Once resident in the UK for more than 15/20 tax years, the remittance basis was no longer available, and they would be taxable on their UK and Worldwide income as it arose.

The remittance basis would automatically apply to overseas income and gains of under £2,000 and there was no charge.

Transitional rules- Temporary Repatriation Facility

Where an individual had previously made use of the Remittance Basis prior to 6 April 2025, there are transitional rules in place to allow them to elect for income and gains that had previously not been taxed under the remittance basis to be taxed in the UK at a reduced tax rate. These income and gains can then be remitted to the UK without any further tax.

For the tax years 2025/26 and 2026/27, the reduced tax rate is 12% and for the 2027/28 tax year it's 15%.

Inheritance tax

Prior to 6 April 2025, domicile rather than residence determined if someone was subject to UK IHT on their worldwide assets.

A non-UK domiciled individual would only be subject to UK IHT on their assets held in the UK. Once they become UK domiciled or deemed domiciled then their worldwide assets would also come into scope.