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If you live part of the year in the UK and part of the year in another country, you may be considered a dual resident for tax purposes. This situation can lead to complexities around how your income is taxed and which country has the right to claim tax on your earnings. However, the double tax agreement (DTA) between the UK and the other country generally provides a resolution through a series of tie-breaker rules.
What Is Dual Residency?
Dual residency occurs when an individual meets the residence criteria of two different countries under each country’s domestic tax laws. In the UK, this is assessed through the Statutory Residence Test (SRT), while other countries have their own rules. Being a dual resident does not automatically mean double taxation. Double tax treaties aim to avoid this outcome.
How Double Tax Treaties Resolve Dual Residency
Most UK DTAs include a “residence article” that contains tie-breaker provisions. These provisions determine a single country of residence for treaty purposes by following a hierarchical approach:
Permanent Home: The country where the individual has a permanent home available is considered the primary residence. A permanent home does not need to be owned—it just needs to be available on an ongoing basis.
Centre of Vital Interests: If permanent homes exist in both countries, the next test assesses where the individual’s personal and economic connections are stronger—this includes social ties, employment, business interests, and family location.
Habitual Abode: If it’s unclear where the vital interests lie, the treaty considers the individual’s habitual residence, which is the place where they reside more frequently throughout the year.
Nationality: If the individual habitually resides in both countries or neither, then nationality is used as the deciding factor.
Mutual Agreement: When all previous tests are inconclusive—such as when the person is a national of both countries—tax authorities from both states negotiate to determine residency under the treaty.
Effect of Treaty Residency on UK Taxation
If the tie-breaker rules assign the individual as a resident in the other country, they are considered a “treaty non-resident” for UK tax purposes. This status significantly alters the tax liability in the UK:
- UK taxes only UK-source income, subject to treaty limitations.
- Foreign income is generally exempt from UK tax, provided the relevant treaty covers that type of income.
- Personal allowances under UK rules may still apply if you are a domestic resident.
- Tax returns must still be filed if required under UK law, even for treaty non-residents.
However, while treaty non-residency changes tax obligations, it does not change the fact that the individual is domestically resident in the UK. They must still comply with UK administrative requirements such as registering with HMRC and filing returns.
Common Scenario: Short-Term UK Assignments
Many dual residents are foreign nationals temporarily assigned to the UK for work. While their home country continues to treat them as tax residents, their presence in the UK may exceed the SRT thresholds, making them UK residents for domestic purposes.
Using the DTA, such individuals can often retain treaty residence in their home country, thereby limiting their UK tax exposure to UK-source income, such as UK employment earnings.
Practical Guidance
- Determine UK residency using the Statutory Residence Test.
- Review the DTA between the UK and the other country for applicable tie-breaker rules.
- Apply tie-breaker tests in sequence and gather supporting evidence, such as housing contracts, family location, and employment details.
- Claim treaty benefits via the UK self-assessment return or appropriate forms.
Dual residency doesn’t automatically result in double taxation. The UK’s network of double tax treaties ensures individuals are taxed fairly based on a clear and structured hierarchy of connection tests. Dual residents must manage compliance in both countries, fulfilling their UK duties while taking advantage of treaty protections. Understanding tie-breaker rules can minimise UK tax liabilities and clarify international tax responsibilities.