Double taxation agreements: residence: Individuals
Handling of claims under agreements to exemption from tax on income arising in the United Kingdom depends on whether the claimant is regarded as resident in the United Kingdom under its domestic law. Where the individual does not make a self assessment, this point should be settled by reference to SE42810 onwards with assistance, where necessary, from CSTD, Business, Assets & International, Assets Residence & Valuation.
For years where a claimant makes a self assessment of their liability, they are required to `self-certify’ their residence status on the Non-residence etc. pages of their Tax Return. The CSTD, Business, Assets & International, Assets Residence & Valuation team will not issue residence rulings for these years as a matter of routine but will remain available to consider cases of doubt or difficulty. Officers are not prevented from challenging, in appropriate cases, an individual’s self-certification of their residence status as part of an enquiry into a return - see also INTM162040.
Claimant not resident in the United Kingdom
Where a claimant does not make a self assessment and is not resident in the United Kingdom for the period of the claim they may be accepted as a resident of the other country for the purposes of the agreement so long as they provide a statement from the overseas tax authority. This certificate should confirm that it regards the individual as tax resident there under its domestic law for the period in question, which should be clearly stated on the certificate.
Where a claimant makes a self assessment, any claim for exemption or partial relief from UK tax is made on the form attached to Help Sheet HS304 (Non-Residents - Relief under Double Taxation Agreements) (available on the HMRC internet site). The claim form must be accompanied by a statement from the overseas tax authority along the lines of that mentioned above.
Different countries have different fiscal years, for example, the United States tax year ends on 31 December. An individual who wishes to make a treaty claim as a resident of the United States in respect of the United Kingdom tax year 2010/11 will need to demonstrate that he is a resident of the United States during both of the United States tax years 2010 and 2011. If an individual was resident in the United States during the tax year 2010 but ceased to be so resident after 31 December 2010, then he may make a claim as a United States resident for any 2010/11 income which arose during 2010 but no claim is possible in respect of income arising in 2011.
If income arises partly during a period of residence in the other country and partly during a period of residence in the United Kingdom, the income may be apportioned between the periods on a time basis, unless it is clear that the income arose unevenly over the two periods, for example a bonus payable for duties performed in one of the periods.
In cases where the claimant is not resident in the UK under our domestic law and a satisfactory statement from the foreign tax authority is provided, a claim to exemption from UK tax may be admitted so long as the conditions in the relevant agreement for the category of income in question are satisfied. See, in particular, INTM153170 (employment income), INTM153080 (trading income) and INTM153160 (professions and vocations) in this connection.
Under self assessment, the taxpayer is required to make a declaration that he meets all the relevant conditions for relief upon making a claim. It is open to Officers to challenge the bona fides of claims in appropriate cases.
If, for years other than self assessment years, no satisfactory statement from the foreign tax authority is supplied, the claimant should be asked to withdraw any claim made on the basis that he is a resident of the agreement country concerned. If a formal refusal becomes necessary, the papers should be sent to CSTD, Business, Assets & International, Assets Residence & Valuation.
Where an individual claims exemption or partial relief from UK tax for a self assessment year but alleges that he is unable, because of the time limits for the submission of the Tax Return, to supply the necessary certificate from the overseas tax authority for the whole period of the claim, submit the papers toCSTD, Business, Assets & International, Assets Residence & Valuation for advice immediately after the return has been processed.
Occasionally it is said that a taxpayer has been unable to obtain a statement from the tax authority of the country where he claims to be resident. It is the responsibility of the claimant to provide evidence in support of his claim. Subject to the guidance below concerning residents of the United States it is, in practice, unusual for taxpayers to experience difficulty in obtaining statements from foreign tax authorities. But where an individual is able to show that he has tried and failed to obtain the necessary support for his claim, CSTD, Business, Assets & International, Assets Residence & Valuation may be able to assist by approaching the foreign tax authority.
Claim to be USA resident
Statements concerning residence should not be sought from the US Internal Revenue Service where the taxpayer claims to be a resident of the USA. Claims under the United Kingdom/United States of America agreement should be considered in accordance with the guidance at DT19858 onwards.
Claimant resident in the United Kingdom
Under self assessment, a dual-resident individual is responsible for determining, in the first instance, their own residence status for the purposes of the relevant Double Taxation Agreement, by
- obtaining and completing pages NR1 and NR2 of the Non-residence etc. pages of the Tax Return to confirm their status as a UK resident under domestic law
- obtaining and completing Help Sheet HS302 (Dual-Residents) (available on the HMRC internet site).
Part 1 of HS302 enables the individual to attest the fact of their dual -residence by enclosing a certificate from the overseas tax authority, or, in the case of the USA, providing the data which demonstrates that he meets the criteria set out at DT19858 onwards for them to be regarded as a resident of the United States.
Part 2 of HS302 enables the individual to self-determine their residence status for the purposes of the Double Taxation Agreement in question by considering the residence tie-breaker provisions of the appropriate agreement (see INTM154020). For this purpose, the individual is required, in making their declaration, to have regard to the particular terms of the relevant agreement, rather than relying on the generality of the guidance contained in the Help Sheet.
If, having consulted the relevant agreement, the taxpayer concludes that whilst they are a dual-resident under domestic law, they fall to be regarded as resident in the other country for the purposes of the agreement, they complete the Declaration in Part 3 of HS302 and list the income from which exemption or partial relief from UK tax is claimed. Income which is fully exempt from UK tax is then excluded from the rest of the Tax Return. Income in respect of which partial relief from UK tax is due is included in the Tax Return but the amount of partial relief, as quantified using the Help Sheet, is deducted in arriving at the amount of the self assessment.
Where the claimant is resident in the UK under its domestic law and the agreement is a modern one of the type referred to in INTM154020, then, provided that the taxpayer has demonstrated the fact of their residence in the treaty partner country in Part 1 of HS302, it may be accepted that they are a resident of the other country for the purposes of the agreement if
- the claim relates to income arising during a stay in the United Kingdom of eleven months or less, and
- that stay in the United Kingdom represents an interval between two periods when the claimant was not resident in the United Kingdom under our domestic law and was a resident of the other country for tax purposes.
Where these conditions are met the claim may be admitted so long as the conditions in the agreement for the income in question are satisfied. See in particular INTM153170 (employment income), INTM153080 (trading income) and INTM153160 (professions and vocations) in this connection.
Where the conditions are not satisfied the file should be submitted to CSTD, Business, Assets & International, Assets Residence & Valuation for advice as soon as the tax return has been processed, bearing in mind the advice given in the penultimate paragraph of INTM154020.
The flow chart below summarises the instructions at INTM154010 to INTM154040 but should not be regarded as a substitute for the instructions themselves.