Testing tax residence is all about testing ties and connections – and the first one expats should look at is if they have a partner living in the UK.
The complicated rules mean that even if a non-resident expat did not meet their partner until some years after a tax event arose, they could still be liable for tax because of their new partner’s UK residence.
Expat relationships alter tax status.
Residency rules look at if someone came to or was living in the UK for the previous three tax years, so if a gain was made in 2012 and an expat did not move in with their partner until 2015, the partner’s tax status in earlier years would still come into play.
If expats had a partner who was living in the UK for even part of the 2012 financial year, this can lead to tax difficulties even if the expat was not resident for tax.
Relationships impact tax status
A partner does not have to be a husband or wife, just someone the expat lives with.
As a returning expat, the time limit for staying in the UK is 120 days in a tax year before the rules of residency kick in.
But if an expat has a partner already living in the UK, that limit is reduced to 90 days.
Clearly, understanding partner connections can impact on tax status in unexpected ways.
Even if both partners spent the same amount of time in the UK, their day limits could vary if one was an arrive and the other a leaver.
Beating the tax trap
Tax advisers can look at solutions to the problem.
The first is simple, if a single expat is exempt from tax, then delay moving in with a partner or the marriage.
Other work rounds could include a pre-nuptial agreement with a special clause dealing with residency in the prior three years.
Don’t forget living together rather than marriage in the earlier years matters because the family tie is not marriage but the number of days the partner spent in the UK and how that impacts the days spent limits.