Tie breaking - avoiding double residency

With the proposal to change the "90 day" test to include days of arrival and departure from 6 April, a surprising number of individuals seem to be looking to re-arrange their travel plans and UK visits to bring themselves below the new threshold and, thereby, avoid what they believe will be UK tax residency status and the consequential obligation to pay UK taxes.

For those individuals who are resident in a second country with which the UK has concluded a double tax treaty, such actions will, more often than not, prove unnecessary. One of the purposes of double tax treaties is to avoid international juridical double taxation, being where the same profits are taxed on the same person by two, or more, countries.

Where an individual is resident in a second country under that country's domestic rules, and finds themselves exceeding the 90 day test through which they will also, in the fullness of time, also come be held to be resident under the UK's domestic rules, it is most likely that a tie breaking clause will be found in a treaty between the UK and the second country. The tie breaker is likely to remove concerns over the 90 day test.

Whilst the content of the specific treaty must always be checked, and interpreted correctly, most UK treaties contain a tie breaking clause, the effect of which is to apply a series of tests to determine which of country will forego its claim to residency, thereby leaving the individual to be treated as resident in only the other country. The treaty will take priority over domestic legislation. The gist of the typical tie breaker is that the individual will be treated as resident only in the country with which they are most closely attached.

Treaties concluded by the UK do often, but not always, follow the model OECD Model Tax Convention, where the relevant Article 4 is as follows:

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

It is likely, therefore, that most casual visitors to the UK will, so long as they are resident in a second country which has a treaty with the UK, be saved from UK resdiency status even if they have a regular presence in the UK of more than 90 days per annum.

The UK has concluded treaties with over 100 other countries. The treaties in force can be found here.