Determining residency is a difficult task under a facts and circumstances test where the outcome may be subject to interpretation. The United Kingdom (U.K.) faces unique issues because of the existence of the Commonwealth and the mobility of residents between member states. The U.K. has fashioned tests designed to make clear whether an individual is a resident or non-resident for purposes of U.K. taxation.
If one of three tests is satisfied, the individual will be a tax resident. An individual is a tax resident if he or she is present in the U.K. for 183 days in a year or has a home in the U.K. The third test is satisfied if you were resident in the U.K. three of six years preceding death or have a home in the U.K.
The failure to satisfy these tests, you are left with the “sufficient ties” test, which looks at a combination of factors with the number of days spent in the U.K.
The non-resident automatic tests are (i) 183 days in the U.K.; (ii) one has not been a resident in the U.K. for the past three years and spend less than forty-six (46) days in the year in question.
There are four ties. The family tie is a spouse or civil union partner or child under 18 in the U.K. The accommodation tie, if you have a place to live or available to you in the U.K. The third tie is work in the U.K. for forty days. Fourth is if you spent 90 days in the U.K. in the current or preceding year. There is a fifth test if you are resident in the U.K. in the prior three years. You count the number of days spent in the U.K. and if more than days spent in any other country.
The United States has separate rules for federal income taxation (“FIT”) and for federal estate taxation (“FET”). A lawful permanent resident is generally a resident from the start of the year in which he is physically present in the U.S., while holding a permanent residence visa (green card). If the lawful permanent resident satisfied the substantial presence test and green card test, residency begins on the earlier date. The rules are a bit more detailed and complex than the overview. A Resident Alien is taxable as either (i) a lawful permanent resident; (ii) satisfies the substantial presence test and does not qualify for the exception under the closer connection with another country; or (iii) elects to be taxed as a U.S. resident.
Non-resident aliens, physically present in the United States for 183 days or more in the current year or who satisfy the “lookback test” are subject to FIT. The later requires the individual to be present for 31 days in the current year and for 183 days or more over the sum of the current year, one-third of the days in the preceding year and one-sixth of the second preceding year.
FET and Gift tax focuses on domicile and the test is broader in scope. A person acquires domicile by residing in a place, even for a brief period of time, with no definite intention of remaining. I observe that ascertaining the intent of a decedent can be difficult. This places a premium on planning.