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Where Taxpayers and Advisers Meet

How to apply DTA and question of being treaty non-resident

andi
Posts: 4
Joined: Thu Dec 13, 2012 2:55 am

How to apply DTA and question of being treaty non-resident

Postby andi » Fri Dec 05, 2014 4:05 pm

I'm trying to understand the meaning of "treaty non-resident" and how to apply a DTA in the context of CGT for temporary non-residents.

CG26540 says: "For the purpose of the 4 out of 7 year test, where a year falling within the 7 year period is 2012-13 or an earlier year then the test is modified slightly. A year would be regarded as one of the 4 years where: 1) the individual was resident in the UK for the year and 2) there was no time in that year when the individual was treaty non-resident".

I came to the UK in September 2009. I lived in Austria before that and Austria's tax year is the calendar year. I lived in Austria for more than 183 days in 2009, had a permanent home there when I lived there and worked there. So it's pretty clear that I was an Austrian resident in 2009.

When I moved to the UK in September, I became a resident (spent more than 90 days in the UK in the tax year, had a home, etc). I assume split year treatment would apply for 2009 but I would still be considered a resident for the whole 2009-10 tax year.

So from January 1 to April 5 I was a sole resident of Austria. Given that the UK tax year starts on April 6, I assume I became a UK resident on that date, even though I moved in September.

Does that mean I would have been treaty non-resident between April 6 and September, meaning that the 2009-10 tax year would not count as one of the 4 out of 7 year test?

Or does the DTA have to be applied to a whole tax year? And which tax year (Austria or UK)? Assuming Austria, can we assume the DTA would result in favour of Austria since I spent the majority of 2009 in Austria, or do we have to look at factors like permanent home, etc and if so, for which period (starting from September? from April 6?).

Thanks for your help!

GlobalTaxAdviser
Posts: 633
Joined: Fri Dec 05, 2014 1:18 am

Re: How to apply DTA and question of being treaty non-reside

Postby GlobalTaxAdviser » Sat Dec 06, 2014 12:32 am

It is more complex but there are various conditions to look in to domestically and Article 13 Capital Gains of the Austria-UK Double tax treaty

There are four criteria under domestic law to satisfy if you become liable for CGT :

For a charge to Capital Gains Tax (CGT) to accrue under Section 10A
TCGA 1992 for Temporary Non Residents all four of the following conditions must be met:

• the individual is resident in the UK for the 2009/10 tax year and is not
Treaty non-resident
• the individual was previously resident or ordinarily resident and not Treaty
non-resident at some earlier time before he became not resident and not
ordinarily resident
• there are fewer than five complete tax years between the year of departure
from and year of return to the UK
• the individual was resident or ordinarily resident and not Treaty
non-resident in the UK for any part of at least four out of the seven tax
years before the year of departure.

Normally the third point is key and catches people out.

However, the DTA between Austria and UK (article 13) says something different

(5) Notwithstanding the provisions of paragraph (4) of this Article, a
Contracting State may impose tax on capital gains from the alienation of
movable property if the alienator:
(a) was a resident of that Contracting State at any time within a period
of three years preceding the alienation; and
(b) is a resident of the other Contracting State at the time the alienation
is made; and
(c) is not subject to tax on the gains from the alienation in that other
State.

The key event is a) which indicates that CGT maybe imposed

On your residency question prior to 2013/14 this is based on 183 days in the tax year. Could be resident from day 1 if you intend to stay in the UK more than three years from the outset.

To claim double tax relief then you need apply to HMRC by competing a form. There are forms for different countries and one generic one

Hope this helps

Thanks

Sash

andi
Posts: 4
Joined: Thu Dec 13, 2012 2:55 am

Re: How to apply DTA and question of being treaty non-reside

Postby andi » Sun Dec 07, 2014 4:01 pm

Thanks for your reply and for pointing out article 13. I'm not sure your reply has answered my question, though.

I am trying to figure out which tax years count for the 4 out of 7 in my case. CG26540 says "2) there was no time in that year when the individual was treaty non-resident" and I'm trying to establish if I was treaty non-resident in the tax year 2009-10.

I don't know if the tie breaker rules have to be applied to the whole tax year (and if so, which one, since the tax years in Austria and UK differ) or whether they can be applied to different periods in the same tax year. In 2009 (Austria) and 2009-10 (UK), I had the following periods:
  • January to 5 April: sole resident of Austria.
  • 6 April to 31 August: definitely an Austrian resident since I worked and live there, and possibly dual resident since UK residence applies to the whole tax year and I was a resident in 2009-10. Tie breaker would clearly rule for Austria since I had no home in the UK during that period. Does that mean there was a period during 2009-10 that I was treaty non-resident?
  • 1 September to 31 December: dual resident (UK: because I came to the UK; Austria: because the tax year is the 2009 calendar year and I was resident for more than 183 days). Not sure how tie breaker would work. Had home in UK & Austria, employed in Austria but working from UK, intend to stay in UK for 3+ years.
  • 1 January to 5 April: sole resident of UK since I wasn't an Austrian resident in 2010.
Does that make sense? Does the period from 6 April to 31 August make me treaty resident for 2009-2010 (meaning this year won't count for the 4 out of 7 test), or do I have to look at the period of 1 September to 31 December or the whole tax year as one?

GlobalTaxAdviser
Posts: 633
Joined: Fri Dec 05, 2014 1:18 am

Re: How to apply DTA and question of being treaty non-reside

Postby GlobalTaxAdviser » Mon Dec 08, 2014 1:58 am

Hi Andi

In general terms, you will need to look at UK and Austrian residency rules separately, The 4 out of 7 years apply to the UK tax year i.e 6th to 5th April

You only go to the tiebreaker only if your are considered to be resident in both UK and Austria according to local tax laws in respect to residency. Tie break looks at home, centre of vital interests, habitual abode, and nationality

I would imagine that if you are non resident in the UK when the asset had been sold you would escape CGT irrespective of Article 13 under TCGA 1992, s.2(1)

Thanks

Sash

www.business-at.com

LozaACCS
Posts: 1504
Joined: Wed Aug 06, 2008 3:55 pm

Re: How to apply DTA and question of being treaty non-reside

Postby LozaACCS » Wed Dec 17, 2014 9:37 pm

Using the old rules (pre SRT),

When you came to the UK in Sept 09, you would be UK R from that date if

1 You came to the UK permanently (HMRC 6 part 7 (7.2))
2.You were a long term visitor, ie you intend to stay in the UK for at least two years (7.4)

If you were a short term visitor (intends to stay less than 2 years) the 90 day rule is relevant, I assume this is not the case.

So assuming 1 or 2 applies you are treated as UK R in 09/10, again assuming 1 or 2 applies you will qualify for split year treatment.
Your residence in 09/10 will therefore be from Sept 09 to the end of the tax year (05/04/10)
This in itself will not exclude 09/10 from the 4 out of 7 count, a split year can be included but only if you were not TNR in that year.

To establish whether you were TNR the DTR must be considered and I believe would be judged from a UK perspective of the UK tax year and from an Austrian perspective to be the calendar year.
The test is somewhat subjective and I think Article 4 is more relevant to this extent than Article 13.

In my opinion I think you were TNR and as a result 09/10 would not count.

andi
Posts: 4
Joined: Thu Dec 13, 2012 2:55 am

Re: How to apply DTA and question of being treaty non-reside

Postby andi » Thu Dec 18, 2014 1:26 am

1 You came to the UK permanently (HMRC 6 part 7 (7.2))
2.You were a long term visitor, ie you intend to stay in the UK for at least two years (7.4)

If you were a short term visitor (intends to stay less than 2 years) the 90 day rule is relevant, I assume this is not the case.

So assuming 1 or 2 applies you are treated as UK R in 09/10, again assuming 1 or 2 applies you will qualify for split year treatment.
Your residence in 09/10 will therefore be from Sept 09 to the end of the tax year (05/04/10)
Yes, 2. applies since my intention was to stay for more than two years when I moved there. I'm surprised you say that the residence started in September 2009. I thought you were considered a resident for the complete tax year, even though split year treatment applied.
To establish whether you were TNR the DTR must be considered and I believe would be judged from a UK perspective of the UK tax year and from an Austrian perspective to be the calendar year.
From an Austrian perspective I think it's pretty clear that I was a resident in 2009 since I lived there from January to August and had no home elsewhere and kept a home for the whole year. From a UK perspective, I'm not sure and I guess it depends whether I have to take April 2009 to April 2010, or as you suggest above, September 2009 to April 2010. If the former, I'd say Austria clearly wins. If the latter, it's less clear.

I guess my confusion stems from the fact that CG26540 says "there was no time in that year when the individual was treaty non-resident". What does "no time" mean? It suggests to me that the year can be split into different parts but I find no information or examples on the HRMC web site.


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