If you were once resident in the UK and are now resident in the Cayman Islands, then knowing your tax status and your UK tax obligations is very important. Equally, if you are thinking of emigrating the same is true. The Finance Act 2013 introduced a statutory residence test (SRT) that came into effect on 6th April 2013. The legislation is helpful in setting out the steps you need to take to cease UK residence.
Usefully for Caymanian residents, the SRT makes remaining non-UK resident much clearer even if you still have connections to the UK. The SRT allows you to be certain that, if you visit the UK for no more than a certain number of days, you will not be regarded as UK resident. This will be helpful to Caymanians who wish to continue to visit family or friends in the UK, knowing that in doing so, they will not establish tax residence in the UK. Additionally, should you wish to return to the UK at any point there are clear, if complex, rules which will help you plan with certainty on what date you will become UK resident. This means you can plan, take any necessary advice and organize your affairs tax efficiently prior to acquiring UK residence.
The following is a general overview of the SRT and in particular, how to become and remain a non-resident of the UK. We also talk about how to change your domicile (and some difficulties which may arise).
The process and tax analysis required in order to determine your residence status can be complicated and is specific to an individual’s own circumstances. If you want formal (or informal) advice on this or any other aspect of UK taxation, the team at Hotchkiss Associates Limited can help.
The SRT took a long time to be formulated. HMRC heralded the new rules as “uncomplicated” and that “taxpayers will be able to determine their residence status with clarity”. HMRC have produced guidance regarding residence and domicile (RDR1) which includes the SRT.
Whilst we agree the rules are clear, they are actually very complex and tax advice is likely to be needed in many circumstances.
It is important to note that, even if you have become a non-resident of the UK and a Cayman resident, it is your domicile status which will determine whether you are liable to pay UK Inheritance Tax (IHT). Many individuals assume that because they are non-UK resident that they are also non-UK domiciled and hence outside the scope of UK IHT. This is certainly not the case! If you wish to avoid UK IHT on your worldwide assets then you must change your domicile to the Cayman Islands. If you are non-UK domiciled you will only be liable to IHT on assets located in the UK.