The changes are causing many people to question their UK tax residence and IHT planning provisions.
The default basis of taxation for income tax and capital gains tax (CGT) for individuals is known as the ‘arising basis’. Where the arising basis of taxation applies for a tax year, individuals are taxed on their worldwide taxable income deemed to arise and the chargeable gains deemed to accrue to them in the tax year.
From 6 April 2025, the test for whether non-UK assets are in scope for IHT is whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event occurs, using the statutory residence test (SRT).
For an individual 20 years old or younger, the test will be whether they have been UK-resident for at least 50% of the tax years since their birth.
If the individual is in scope to UK IHT, then all of their worldwide assets which they own absolutely (outright) will be charged to IHT.
How do you know if you are resident in the UK for tax purposes though? The world is getting smaller, and we may commute overseas for work returning home at weekends; we may have holiday homes or second homes in a different country for example. What then becomes important in establishing your tax residence? Many years ago, we would look at a person’s life and how that was made up and that remains true today, but the Statutory Residence Test (SRT) provides a series of tests to provide certainty for those leaving or coming to the UK.
The three main elements of the SRT are as follows:
Automatic overseas tests:
if an individual meets at least one of the automatic overseas tests, they will be non-UK resident, and no further tests should be considered. If the individual meets none of the automatic overseas tests, then the automatic UK tests should be considered.
Automatic UK tests:
these tests are only applicable where an individual meets none of the automatic overseas tests. If an individual meets at least one of the automatic UK tests, then they will be UK resident, and no further tests can be considered. If an individual meets none of the automatic UK tests, as well as none of the automatic overseas tests, then the sufficient ties test should be considered.
Sufficient ties test:
this test is only applicable if an individual meets none of the automatic overseas tests and none of the automatic UK tests. If an individual meets the sufficient ties test, they will be UK resident. If an individual does not meet the sufficient ties test (or the automatic overseas and UK tests), they will be non-UK resident
The SRT should determine and settle the question of UK residence in most cases. However, in cases where an individual is resident in the UK under the SRT and also resident in another country with which the UK has a double tax treaty, the ‘tie breaker’ rules under Article 4 of the double tax treaty should also be considered. Article 4 may, in effect, override the individual’s residence status under the SRT such that a UK resident under the SRT be considered ‘treaty non-resident’ in the UK.
We can help guide you through both these areas to ensure you are best prepared to navigate these changes.
If you have any queries and would like assistance, please contact Diane Nettleton on 01633 653167 or email diane.nettleton@kilsbywilliams.com to discuss Statutory Tax Residence and Anne.smith@kilsbywilliams.com to discuss Inheritance Tax planning. Alternatively, please contact your usual advisor on 01633 810081 or email info@kilsbywilliams.com
