Temporary Non-Residents and UK Tax

The temporary non-resident rules are relevant for individuals who have left the UK to become non-resident, and then return to be UK resident again. It is essentially an anti-avoidance measure, to ensure that individuals do not avoid tax (e.g. on a large capital gain) by becoming non-resident for only a small number of tax years.

Individuals will be regarded as temporary non-resident in the following circumstances:

  • The individual lived in the UK for at least 4 out of 7 of the last tax years prior to their departure from the UK, and:
  • The individual was away from the UK for 5 years or less

Being a temporary non-resident is often no cause for concern, since only certain types of income and gains need to be considered. These types of income and gains are as follows.

  • Gains on assets that were held before leaving the UK
  • Remitted foreign income (where individual was a remittance basis user)
  • Distributions made from closely controlled companies
  • Income subject to tax under the disguised remuneration rules
  • Certain pension payments lump sums and certain other charges
  • loans to participators that have been written off
  • chargeable event gains

If such income or gains were generated in their period of non-residence, they will become chargeable to tax in the tax year of returning to the UK.

The 5 Year Rule

In order to avoid being a temporary non-resident it is necessary to be away from the UK for more than 5 years,

Under the old rules (which applied for years of departure up to 5 April 2013), an individual would need to be non-resident for at least 5 complete tax years between the year of departure and the year of return, in order to not be categorised as temporarily non-resident. Under current rules, the 5 year period means calendar years, rather than tax years. Therefore, in order to not be a temporary non-resident, an individual would need to be non-resident for more than 5 calendar years.

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