The UK’s Temporary Non-Residence Rules

This article is part of our series covering a number of core concepts relevant to the application of UK tax to individuals and wealth owning structures which have an international connection.

Background

Whether an individual is tax resident in the UK in a particular tax year (which runs from 6 April one year to 5 April the next) is governed by the “Statutory Residence Test” (the “SRT”). See our article entitled “An introduction to residence and domicile” for more on this. All references to “residence” in this article are to tax residence as determined by the SRT.

Ceasing to be tax resident can significantly reduce exposure to UK taxation. This is particularly relevant for income tax and capital gains tax, which non-residents only pay in limited circumstances, such as if they work in the UK and/or have interests in real estate here.

The temporary non-residence rules (the “Rules”) were introduced to stop people becoming non-UK resident for just a short period to take advantage of this reduced tax exposure (e.g. to dispose of an asset, or receive a dividend).

Where the Rules apply, certain types of gains realised and/or income received whilst non-UK tax resident can be subjected to UK tax when the individual becomes UK tax resident again. Because of this, it is often sensible to plan periods of non-residence to ensure that the Rules cannot be triggered.

Criteria

The Rules should generally be considered whenever the following fact pattern is present:

• an individual is UK tax resident;
• they cease to be UK tax resident for one or more tax years (the “period of non-residence”); and then
• they become UK tax resident again.

An individual can be caught by the Rules (and be considered “temporarily non-resident”) if:

1. They were UK tax resident for at least 4 of the 7 tax years prior to the period of non-residence; and

2. The period of non-residence is 5 years or less.

The second of these is something of a trap for the unwary because in practice being non-UK tax resident for more than 5 years often requires a person to live outside of the UK for well over 5 years.

By way of example, if someone were to leave the UK in December 2024 and then return in January 2031 they might quite reasonably think that they had been living elsewhere for over 6 years and couldn’t possibly fall foul of the temporary non-residence rules. However, depending on their circumstances, it is feasible that they could be UK tax resident in both the tax year of departure (2024/25) and the tax year of return (2030/31). This would mean that they were only non-UK resident for 5 tax years exactly, rather than more than 5 as is required (unless they could “split” one or both of the year of departure or return, as referred to in our introduction to residence and domicile article).

To show this visually: