IOM Tax Solutions
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Which category are you an arriver or a leaver is important if the automatic tests do not apply?
Automatically Non-Resident -You cannot be UK resident if :
you spend less than 16 days in the UK during the tax year
you were not UK resident in the previous three tax years, and you spend less than 46 days in the UK; or
you have left the UK for full-time work abroad (this includes self-employed work)
For the purposes of this test, work abroad is considered to be “full-time” if it is on average more than 35 hours per week over the whole tax year. Where some employment duties are performed in the UK you can spend up to 30 working days per year in the UK without overturning non-resident status.
If you do not qualify as automatically non-resident under the test outlined above then the next step is to consider whether you would be considered to be automatically UK tax resident.
Automatically UK Resident -You will be automatically UK tax resident for a tax year if :
you spend at least 183 days in the UK during the tax year: or
your only home is in the UK for more than 90 days during the tax year and you occupy that home for at least 30 days
you are in full-time work in the UK for a continuous 12 month period (not necessarily coinciding with the tax year)
In many cases it is possible to not meet the conditions of either the automatic non-resident test or the automatic resident test. In these cases you need to consider a series of further tests known as the “sufficient ties test”.
Taken together, the number of your ties with the UK and the days spent in the UK will decide your tax residence status.
Here is an overview of how the UK ties and UK days tests work together :
The Ties Tests
Family Tie : You have a UK family tie if you have
1. • a spouse
2. • a civil partner
3. • someone with whom you are living as a partner
4. • a minor child who is resident in the UK.
A minor child who is only resident in the UK because they are in full-time education in the UK will not be considered a connecting factor provided they spend fewer than 21 days in the UK outside term time. A half term holiday will count as term time for these purposes.
Accommodation Tie : You have a UK accommodation tie if :
You have ‘available accommodation’ for a continuous period of at least 91 days in the tax year, ignoring any gaps of fewer than 16 days.
Available accommodation is widely defined and will include a home in the UK, holiday home, temporary retreat or similar’ and could include the use of a hotel if the same hotel is always used.
Work Tie : You have a UK work tie if you spend at least 40 days working in the UK, where a working day is defined as three hours.
90-day Tie: You will have the 90 day tie if you spent more than 90 days in the UK in at least one of the previous two tax years.
Country Tie : This only applies when you leave the UK
You will have the UK country tie if the UK is the country where the greatest number of days has been spent.
For day counting purposes, days spent in the UK at midnight are counted.
However an anti-avoidance provision will apply to individuals who manipulate this rule to attempt to qualify for non-resident status, despite spending considerable time in the UK and having substantial ties.
Days spent in the UK as a result of exceptional circumstances will not to be counted as UK days - up to a maximum of 60 days.
Guidance will be published by HMRC at a later date to explain how it will apply these provisions in practice.
New rules have been introduced and relate to anyone who avoids tax on certain types of income - such as dividends paid by a company they control or proceeds from single premium insurance bonds - while they are temporarily non-resident.
These new rules apply if you have been UK resident for four or more of the previous seven tax years.
Tax residence always relates to whole tax years and the tests described above will decide if you are resident or is not resident in a tax year.
However, in the year of departure from or arrival in the UK it is possible to split a tax year between periods of residence and non-residence.
The split year treatment applies where you :
1. • start to work full-time overseas
2. • accompany your spouse or partner who is working full-time overseas
It also applies if you :
• leave the UK to live abroad and you move your home there within six months of your departure and do not return to the UK for more than 15 days for the rest of the relevant tax year; or
• you come to the UK to live here and your only home is in the UK; or
• you come to work full-time in the UK; or
• you acquire a home in the UK and continues to be resident in the UK in the next tax year.
There is no general definition of residence for tax purposes in the Isle of Man. determining a person’s residence status is important, however, in view of the underlying basis of our taxation system. A Manx resident is taxed on worldwide income whereas a non-resident is taxed on Manx-source income only (unless that Manx-source income is otherwise excluded from income tax when paid to a non-resident by virtue of statute, order or regulation
As is common in many countries, the Isle of Man treats those individuals having a ‘view or intent of establishing residence’ as tax resident from the date of their arrival here. The opposite is that individuals who permanently cease residence are treated as tax non-resident from the date of their departure.
The Assessor will look at evidence of a ‘view or intent of establishing residence’ as opposed to presence on the Island for a temporary purpose. New Residents are asked to complete a form registering themselves for Income Tax purposes on arrival to the Island. In most circumstances, completion of this form and evidence of the person having accommodation in the Isle of Man is sufficient for the Assessor to accept that person as resident.
The following tests can also be applied but do not apply where a person’s residence has been accepted
An individual will be resident if on the Island for a period in the whole equal to more than six months in any tax year
Individuals whose visits to the Island over a period of four or more consecutive years exceed an average of three months (90 days) in each tax year will be treated as resident. Where this ‘three month average rule’ is broken, the Assessor will regard the person as resident from the fifth year. However, where it is clear when an individual first visits the Isle of Man that they intend to make visits exceeding an average of 90 days in each tax year over a period of four or more years, they will be treated as resident from the beginning of the first year. Similarly, an individual will be treated as resident from the beginning of the tax year in which they decide that they will make such visits.
If an individual needs to spend days in the Isle of Man for exceptional circumstances beyond their control, those days will not be counted when considering this rule.
The Assessor does not count days of arrival and departure when determining the number of days that a person has spent in the Isle of Man.
It should be noted that other countries often have similar rules, and it is possible for an
individual to be tax resident in more than one country as a consequence. In such instances double taxation relief is available.
Where an individual leaves the Island for occasional residence elsewhere they are treated as IOM resident
One Full or more Tax years abroad
where a normally-resident person is abroad for a complete tax year they will be treated for tax purposes as non-resident for that tax year. Furthermore, it is the practice of the Assessor to treat as permanently non-resident those individuals who are abroad for two complete tax years or more. Where a length of absence exceeding two tax years does not become clear until after the individual is already abroad, the Assessor may need to revise the person’s tax position from the date that they left the Island.
An individual returning to live in the Isle of Man after an absence of more than two complete tax years will be treated by the Assessor as a new resident.
A company formed in the Isle of Man is resident here for tax purposes
A company incorporated outside the Isle of Man is regarded as tax resident in the Isle of Man where its management and control is in the Island. This rule is not in statute but derives from UK case law. Article 2 (1g) of the 1955 Isle of Man – UK double taxation agreement is based on the same principle, where it says:
“…a company shall be regarded as resident in the United Kingdom if its business is managed and controlled in the United Kingdom and as resident of the Island if its business is managed and controlled in the Island…”.
Companies incorporated outside and not resident in the Isle of Man but having a branch in the Isle of Man are taxed to the extent of the business conducted in the Island, and at either the standard 0% rate or the 10% rate of corporate income tax depending on the nature of the income, although the company itself remains tax non-resident.