The rules determining whether or not an individual is a UK tax resident can probably be considered to be one of the most complex and detailed rules in the world.
These rules are summarised in the table below:
|Days in UK||Previously Resident (R)||Not Previously Resident (R)|
|< 16||Automatically NOT R||Automatically NOT R|
|16 – 45||R if 4 UK ties||Automatically NOT R|
|46 – 90||R if 3 UK ties||R if 4 UK ties|
|91 – 120||R if 2 UK ties||R if 3 UK ties|
|121 – 182||R if 1 UK ties||R if 2 UK ties|
|> 183||Automatically R||Automatically R|
In the above table, an individual is considered to be a previously UK resident if he was a resident in any of the previous three tax years. The persons who automatically considered as non-UK tax residents are those who stayed in the UK for less than 16 days in a tax year, whether or not they were previously residents in the UK.
Persons who stayed in the UK between 16 and 45 days and were not previously residents in the UK are also treated as non-UK residents. However, they are treated as residents if they have 4 UK ties.
There are 5 UK ties if the individual:
- Has a spouse or civil partner in the UK
- Owns a house in the UK which has been used during a tax year
- Resided in the UK for more than 90 days in either of the two previous tax years
- Spent more time in the UK than in any other country in a tax year
- Carrying substantive work within the UK
The above table also summarises the additional period rules for an individual staying in the UK, based on being previously resident or not in the UK.
In the case where the individual stayed for more than 183 days in a tax year, then he is treated as a UK resident regardless of the previous three tax years residency.
The general rules which govern an individual’s tax liability in the UK are the following:
- Individuals who are residents and domiciled in the UK are liable to pay tax on their worldwide income
- Individuals who are residents in the UK but non-domiciled may be taxed only to the extent that their income is remitted to the UK.
- Individuals who claim to be taxed on a remittance basis, and have been residents in the UK for at least seven of the previous nine tax years, will be subject to a £30,000 annual tax charge. £60,000 if they were residents in the UK for at least 12 of the previous 14 years and £90,000 if they were residents in the UK for at least 17 of the previous 20 years.
The above rules allow individuals who are considered as residents but not domiciled in the UK to take advantage of some valuable tax planning opportunities.
A non-domiciled UK tax resident can consider tax jurisdictions where his source of income is not taxable, assuming no other tax residency applies.
In this case, the UK tax resident individual must not remit his income in the UK, but instead, he can reinvest it abroad. Also, the Double Tax Treaties between the UK and the other states must be considered for tax planning purposes.
A first overview of the Double Tax Treaties between the UK and other states show significant tax planning opportunities for non-domicile UK tax residents. Significant consideration should be given to the treaty between Cyprus and the UK.
A new Double Tax Treaty (DTT) was signed on 22 March 2018 between Cyprus and United Kingdom which will replace the 1974 DTT (amended by the 1980 protocol).
The new DTT comes into force in:
- Cyprus, on 1st January 2019
- UK, on 1st January 2019 for withholding taxes, 6th April 2019 for income and capital gains tax and 1st April 2019 for Corporation Tax
The main provisions of the new DTT are summarized in the below table:
|Source of Income|
|Dividends (other than dividends from tax-exempt immovable property income), Interest, Royalties||0% withholding tax|
|Dividends from tax-exempt immovable property income||15% withholding tax|
Capital Gains Tax
Cyprus retains the exclusive taxing rights on the disposal of shares by Cyprus residents (previously not) except in the cases the shares derive:
Considering the above table, dividend income (other than dividends from tax-exempt immovable property income) is subject to 0% withholding tax.
The most significant tax planning opportunity for UK non-domiciled tax residents is that the dividend income is not taxable in the Republic of Cyprus as those individuals are not Cyprus residents.
This implies that, when a UK tax resident who is a non-UK domiciled, receives dividends from Cyprus Companies, those dividends are not subject to any taxes in Cyprus.
If the dividend income is not remitted to the UK, then the general rules which govern an individual’s tax liability in the UK, as explained above, will apply.