Tax Residency Example

An illustration of the complexities of tax residency rules:

John Smith, a British national, takes a consulting assignment in France for one year, starting 1st May 2006 . Because he will be there for more than six months he is immediately considered to be tax-resident in France and pays his tax in France in line with French legislation.

However, in order to become UK tax non-resident, John needs to be out of the UK for at least one full UK tax year. As the assignment started on 1st May 2006 , he therefore needs to remain out of the UK until after the beginning of the new tax year in April 2008.

Clearly, with a one-year contract, this will not be the case. John remains UK tax-resident therefore and will very likely have to file a UK tax return.

The result is that he will pay tax in France on his income and he will also be assessed in the UK on this income, but his UK tax will be reduced by the amount of French tax already paid. However, if the UK tax works out higher on this same income, he will have to pay the difference in the UK .

The conditions for becoming tax-resident and tax non-resident vary from country to country and depend on such things as length of stay, type of accommodation, location of family, and nationality. In order to avoid unnecessary work and unnecessary tax it is essential to research your circumstances thoroughly or to take professional advice before you take up an overseas assignment or return home. For more information, please contact our tax specialists.