VIDEO: Where am I a tax resident?
Our client, Ms. Małgorzata, approached us with such a question.
Ms. Małgorzata has been working in the UK as self-employed for years. She does not own any property and has no children. She left the UK for Poland in August 2021 and returned to the UK in May 2022. Ms. Małgorzata was unsure about her tax residency status and where she should declare her income for the 2021/22 tax year.
General rules for determining tax residency in the UK
If Ms. Małgorzata were a UK tax resident, she would have to pay taxes on her worldwide income here.
However, if she does not have UK residency, she should only pay taxes in the UK on income earned in the UK during the given tax year. Therefore, it is crucial to determine whether Ms. Małgorzata is a UK taxpayer. For this purpose, tax residency tests are used.
UK Tax Residency Tests
The UK uses tests called Statutory Residence Tests (SRT) to determine tax residency. The SRT tests consist of three parts, each of which must be considered in strict order.
Test for Automatic Non-Residency in the UK
Automatic Overseas Test – we determine whether an individual is not automatically a tax resident of another country (the 'non-residency' test). For this test to yield a positive result, the taxpayer would have had to spend less than 16 days in the UK. Our client spent a total of 150 days in the UK during the 2021/22 tax year, so we had to proceed to the next test.
Test for Automatic UK Residency
Automatic UK Test – we check if an individual meets the conditions to automatically become a tax resident in the UK. This will happen if they meet one of three conditions:
- spends at least 183 days in the UK in the current tax year; or
- has a home in the UK; or
- works full-time in the UK for a period of at least 365 days.
The potential ownership of property outside the UK also influences the decision, but this was not the case for Ms. Małgorzata. However, she did not meet any of the three conditions above. In such a situation, it is necessary to proceed to the next test.
Test for the Number of Taxpayer's Ties to the UK
The Sufficient Ties Test – we check how many ties a given person has with the UK. Ties include family, home, work, physical presence, and time spent in individual countries – the regulations contain detailed guidelines on this matter. In Ms. Małgorzata's case, this test showed that she could be considered a UK tax resident, and therefore should file her taxes there.
Two tax residencies?
But isn't there also a Polish residency in this case? That can happen. And what happens in such a situation?
When do you become a Polish tax resident?
Poland does not use a tool like residency tests. According to the interpretation of the Polish tax office, an individual is considered to have a place of residence in Poland if they:
- have a center of personal or economic interests (center of vital interests) in Poland, or
- reside in Poland for more than 183 days in a tax year.
It is sufficient to meet only one of these conditions.
Therefore, in Poland, the taxpayer determines their tax residency, and the tax office may disagree – in which case, the matter is decided by the appropriate courts.
Dual tax residency
After analyzing all circumstances, it turned out that there was a rare case of dual residency. In such a situation, we refer to international agreements.
DTA/MLI, or the Double Taxation Agreement
The UK and Poland have signed an agreement on double taxation, known as the DTA (Double Taxation Agreement), and drafted based on the international multilateral convention called the Multilateral Instrument (MLI).
This is a collection of legal provisions from which two countries can select specific clauses and implement them as binding regulations in their relations (which also implies making changes to the domestic legal regulations of both countries). Poland and the United Kingdom signed such an agreement in London on July 20, 2006. A separate article on this topic can be found here.
Under the Double Taxation Agreement (DTA), as a tax resident of the United Kingdom, tax paid in Poland is deducted from the tax due in the UK, meaning tax is only paid once.
Ms. Małgorzata has dual tax residency, so we refer to Article 4 of the DTA to determine the primary residency. This is done by analyzing which country has a greater number of ties. In our opinion, this is the United Kingdom. However, if the Polish tax office holds a different view, the matter will be resolved by the appropriate authorities of both states through mutual agreement.
If Ms. Małgorzata had contacted us earlier, we would have advised her on how to maintain her British tax residency, which would have significantly simplified the entire matter.
As you can see, determining tax residency can be a highly complicated process that requires specialized knowledge of not only local but also international law. The results of tax residency analyses vary: one can have, like Ms. Małgorzata, two residencies, sometimes even more, and sometimes none at all. Therefore, it is best to seek professional advice on this matter.
