Harry, Meghan and Canadian tax – what decides tax residency?
QUESTION: I have been following the story of Harry and Meghan considering plans to step back from full time Royal duties and spend more time in Canada. If they do, and they spend a considerable amount of time outside the UK and in Canada, what are the UK tax implications for them?
ANSWER: Unless special tax privileges apply to Harry and Meghan, the same rules regarding tax residency will apply to them as the rules apply to everyone else. An individual's residence status is one of the factors that decides what UK tax you pay and on which types of income and gains.
Your ‘tax residence' helps determine the scope of your tax liability in the UK. The UK taxes its residents on their worldwide income and gains (although relief from UK tax on certain foreign-sourced income and gains may be available for non-UK domiciled individuals). Non-residents are typically liable to tax on their UK-sourced income only.
Since 6 April 2013, there has been a Statutory Residence Test (SRT) in the UK to determine your tax residence status – this means that the rules for residence are set out in law.
You are likely to be treated as UK tax resident under the SRT if you:
• Spend 183 days or more in the UK during a tax year; or
• Have a home in the UK, and do not have a home overseas; or
• Work full-time in the UK over a period of 365 days (this does not need to coincide with the tax year).
You could also be treated as UK resident even if you do not satisfy any of these conditions. This will be determined in part by how much time you spend in the UK in a tax year (or a series of tax years) and the number of ‘ties' you have to the UK. The more time you spend in the UK, the fewer ties you need to be UK resident for tax purposes and therefore subject to UK tax on your foreign income and gains.
Normally you are tax resident (or not) in the UK for a complete tax year – however sometimes you can split the tax year. In this instance the year is split into a UK part and an overseas part. It is also possible to be tax resident in both the UK and another country at the same time: this is called dual residence. Note that your residence status is determined separately from your domicile status.
There is no formal process for agreeing your residence status with HMRC. However, if you are someone who is required to submit a tax return, you will need to complete SA109 ‘Residence, remittance basis etc.' supplementary pages if your residence status is relevant to the entries on your tax return (for example, if you have left out your foreign income and gains on the basis that you consider yourself to be non-resident in the UK). This is then subject to potential enquiry by HMRC if they wish to challenge the position you have taken.
It is important that you keep certain information and records to justify the position you have taken, if necessary.
Harry and Meghan will need to watch whether they take on a Canadian tax residency and if so they will have filing obligations in Canada.
As always, moving from one country to another eg UK to Canada or UK to Ireland creates potential tax requirements and advice should be taken to fully understand these implications.
Malachy McLernon (email@example.com) is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.