UK Tax return, stating residency?

[lifemagic]

Some years back I was unemployed but got received some money when my mother died. I had to sign off so I enrolled with open university and moved around SEA on tourist visas. I graduated and volunteered full time at a social enterprise school in Cambodia. I'm still living on that money, interest and dividends is about 600pa. My legal address in my niece's house, for bank and share accounts, though I've never actually been there.

 

Now my aunt died and so she left us a house (my niece and I). We decided to share it, rent it out. I'll get about 5000pa from it. Then I realised, I'll have to fill in a tax return as, even though I don't make anywhere close to the threshold 11k pa. all rental income has to be declared. On the tax form I have to state if I'm resident for tax purposes. As far as I can work out, I'm not as for the last three years, I've made one trip back for about three weeks. I think I'm still ordinarily resident, based on having only tourist visas, no permanent abode here (or anywhere) and no paying job. The solicitor put my name and my niece's address c/o as my address, though for banking there's no c/o.

 

I've never made enough money to have to file a tax return before (and won't now). I'm mainly worried, declaring myself non-resident might trigger issues with my bank and share account. Would it? I could perhaps just take the cash for the house, invest it, and I'd have a 5k dividend allowance, beyond that I'd be allowed to earn another 10k before owing anything, so no need to file a return. Is that right? I'm trying to set up an online business, but can't imagine ever earning enough to have to pay tax anywhere. I just don't want the residency to be an issue.

[AlexRich]

If you have a bank account and share account in the UK you could be liable to the following:

 

1) Tax on interest income.

2) Tax on dividend income.

3) Tax on capital gains made on share sales (can be offset by losses).

 

If your accounts are in the UK they are liable to tax. However, by the sound of it the personal allowance and capital gains tax allowance would eliminate any gains ... in which case you would probably not be liable to any tax. 

 

Rental income from a UK property is also liable to taxation. Again, £5,000 per annum puts you below the personal allowance threshold. Add £600 per annum for interest and dividends and you still have nil tax liability. 

 

If my memory serves me right the Chancellor introduced a tax free allowance for dividend income, but I don't think it is in place yet. Best to check. Whether it is or is not in place, you're dividend income falls below it.

 

The non-resident rules are a bit complex, but can be downloaded from the HMRC website. From what you have said (three weeks in a tax year) you are not classed as resident in the UK. If you are in Cambodia for greater than 183 days per annum then you are resident there.

 

By the sound of it you do not have anything to be concerned about ... but I would strongly advise you to read the HMRC paper on "Statutory Residence Tests". 

[partington]

You do not need to worry about declarations of non-residency affecting your UK bank accounts as long as you retain the UK address for banks to communicate  and associate you with. HMRC won't say anything to banks- I've done this for the past six years.

 

The non-residence rules are not complicated for your case as you simply need to apply the test in the HMRC  guide here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/458559/RDR3_govuk_hyperlink__updated_078500.pdf

 

Basically if you didn't spend more than 183 days in the UK during current tax year, and you spent less than a certain number of  days in the preceding years you are non-resident for tax, but just work through the flow diagram.

 

You are allowed a personal allowance of £11,000 so you will not have to pay tax. The £5000 annual tax-free dividend allowance came into operation this April, and if you earn less than £17,000 a year interest income is tax free.

 

There are some advantages in staying out of the UK for tax purposes- for example dividends from ETFs or funds domiciled in Ireland  or any non-UK jurisdiction are foreign income and not declarable even if paid straight into your UK brokerage (although you'd need to be earning a lot of dividends to go over your tax-free £5000 allowance!), and more advantageously if non-res for more than five years you don't pay capital gains tax on shares, so it actually may be worth while establishing your non-residency by filling in the self assessment.

[lifemagic]

Thank you. It's great to hear hmgov won't tell the bank. The main nightmare of being given everything in cash and nowhere else to put it!

 

OK. So I had the gist of it right. I won't be liable for tax. I still have to put the return in as it's rental income, but if it starts next month, the tax year finishes April, so as an expat I have to file a paper return, deadline October 2017. Declare myself non-resident and just never tell the bank. I can live with that.

 

Can I still use the NHS, as (to my understanding) I have no permanent address here or right to work, so I'm still ordinarily resident (or is that pushing it)?

[partington]

Legally you are not eligible for free NHS treatment given your current description.  

 

Eligibility for free NHS hospital treatment (GP visits are still free, for now) in the UK is entirely based on residence, not on NI contributions, payment of taxes, owning a house, having an NI number, or even number of days in the country. It is dependent on being "permanently settled" in the country.

 

This residence definition for NHS eligibility is not the same as the residence definition for tax purposes -they are two separate parallel systems.

 

You have to be able to show that you are permanently settled in the UK if asked.   You can be permanently settled the first day you arrive , and eligible for NHS treatment immediately, as long as you can prove this settlement.  Typical proofs would include having a permanent job based in the UK, a long term rental contract, an address where you can show you pay  utility bills and so on.

 

You probably won't get asked but they are tightening up so you may be.  

[topt]

Just to add to partington's replies I would suggest ringing HMRC and explaining your situation. Depending on how the renting is going to be handled between you and your niece, and if an agent is used, will depend on whether tax is withheld which you will have to claim back or whether (as it falls below the taxable level) you will be allowed to be paid gross.

 

Some links here - https://www.gov.uk/government/publications/non-resident-landlord-application-to-receive-uk-rental-income-without-deduction-of-uk-tax-individuals-nrl1i

I have not looked into it but it may not be applicable if your niece collects and passes on to you.

 

Edit - and at the levels you are talking about the tax man may agree that you do not have to fill in a return which is where I was until this year.

 

Edited August 14, 2016 by topt
Added text

[lifemagic]

This is incredibly helpful. I guess if it was serious I could go and get a long term rent. What would constitute 'long term' I wonder?

 

I know my niece is using an agent. No idea if they're paying gross. If they're not (and cannot) this might be too much trouble and I 'd be better off with a reit. 

[davee58]

I have a similar situation in that I have been non-UK resident for many years, but have recently moved my savings into UK based P2P loans. 

 

My understanding is that:

• P2P loans are classed as UK based savings income.
• I need to declare the income, even though it is well below the level at which UK tax is applied.
• I need to claim a personal UK tax allowance.

This can be done using form R43. (R43 form and guidance notes) The taxman might request completion of a tax return if appropriate.

 

Closer to the end of the tax year I will confirm this by sending an online enquiry to HMRC's  Non-UK residents: Income Tax and Capital Gains enquiry

 

 

[rockingrobin]

On 8/12/2016 at 0:05 PM, partington said:

Legally you are not eligible for free NHS treatment given your current description.  

 

Eligibility for free NHS hospital treatment (GP visits are still free, for now) in the UK is entirely based on residence, not on NI contributions, payment of taxes, owning a house, having an NI number, or even number of days in the country. It is dependent on being "permanently settled" in the country.

 

This residence definition for NHS eligibility is not the same as the residence definition for tax purposes -they are two separate parallel systems.

 

You have to be able to show that you are permanently settled in the UK if asked.   You can be permanently settled the first day you arrive , and eligible for NHS treatment immediately, as long as you can prove this settlement.  Typical proofs would include having a permanent job based in the UK, a long term rental contract, an address where you can show you pay  utility bills and so on.

 

You probably won't get asked but they are tightening up so you may be.  

You dont have to be permanently resident for free nhs treatment, it is possible to be ordinarly resident in more  than one country.

This guide should be useful to anyone seeking NHS treatment

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496951/Overseas_visitor_hospital_charging_accs.pdf

[partington]

1 hour ago, rockingrobin said:

You dont have to be permanently resident for free nhs treatment, it is possible to be ordinarly resident in more  than one country.

This guide should be useful to anyone seeking NHS treatment

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496951/Overseas_visitor_hospital_charging_accs.pdf

This is not relevant to what I said.  

 

You need to be permanently settled in the UK for free NHS treatment. Permanent settlement in the UK is not related to your residency in any other country, and not determined or defined by whether another country considers you as resident or not.

 

If you are considered to be settled long-term in the UK, by the UK, this is the only consideration that applies.

 

I agree that the word permanent is perhaps mis-chosen by me, and should be "settled long-term" or some such form of words. I did not mean to suggest you need to live the entire course of your future life in the UK to be eligible!

 

The link you give definitively says this:

"All patients must be assessed against the test for ordinary residence in the UK. More information on how to determine whether a patient is ordinarily resident in the UK, including suggested questions to be asked, can be found in Chapter 3. If the patient is ordinarily resident in the UK they must not be charged. "

Edited October 12, 2016 by partington