Scottish taxpayers will come into existence from 6 April 2016. For most taxpayers the position will be straight forward but for many (including service personnel) there is still considerable uncertainty as there is not yet a final legal definition. In our view this is highly unsatisfactory and means a number of our clients will not know their tax status until well after the tax year has started.
Draft guidance on this matter was first published in June 2015 with little in the way of update since. So, based on the draft guidance currently available, “Will you be a Scottish taxpayer?”
The current proposals are that Scottish taxpayers will only be individuals, so trusts and companies will be excluded.
What will be the deciding factors?
To be a Scottish taxpayer the individual must be UK resident for tax purposes. This is determined under the UK statutory residence rules. Assuming this condition is met, a person will be a Scottish taxpayer if any one of the three following conditions is met:-
- He/she has a “close connection” with Scotland
- If there is no “close connection” with any part of the UK, he/she spends more days in the tax year in Scotland than in any other part of the UK
- He/she is a Scottish parliamentarian.
Here the key element is the location of the person’s “main place of residence”.
- If the taxpayer has only place of residence and that is located in Scotland, he/she will be a Scottish taxpayer. If the only residence is located elsewhere in the UK he/she will not be a Scottish taxpayer.
- If the taxpayer has two main places of residence at different times in the tax year, perhaps through relocating from Manchester to Glasgow during the tax year, he/she will be a Scottish taxpayer if the Scottish property was the main place of residence for at least half of the tax year.
- If the taxpayer has more than one place of residence in the UK at the same time, it will be essential to decide which of those residences is their “main place of residence”.
This will not always be where the taxpayer spends most time. Instead, it will be necessary to identify the residence with which the individual has the ‘greatest connection’. This will be determined by the specific facts and circumstances of each case.
Factors that will be taken into account in deciding which home is the “main place of residence” will include:-
- Where the person’s spouse or civil partner lives, if they are married
- Where their children go to school, if they have any
- Where the majority of their possessions are kept
- How each of their properties is furnished
- Where they are registered to vote
- Where they are registered with a doctor and/or dentist
- Where their car is registered for insurance purposes
- The address used for correspondence by, for example, HMRC, banks, building societies and utility companies.
In addition to those listed above there may be other factors appropriate to particular circumstances. Many of these points are currently considered when deciding which property is a “main residence” for UK tax purposes.
If it proves to be impossible to decide which of a person’s residences is his/her main place of residence, or if he/she does not have any place of residence anywhere in the UK, his/her tax status will be determine on a “days physically present” basis. If the number of days he/she spends in Scotland is the same number as or more than the number of days spent elsewhere in the UK, he/she will be a Scottish taxpayer for that year. For this purpose, a person is treated as having spent a day in Scotland if he/she is here at the end of the day (i.e. midnight).
An individual is a Scottish parliamentarian if he/she is an MSP, an MP for a Scottish constituency or an MEP for Scotland. All Scottish parliamentarians are automatically Scottish taxpayers.
Irrelevant factors in determining Scottish taxpayer status include
Place of birth in the UK.
Location of your employer.
Where you carry out your work duties.
The location of the company making your pension payments.
For those where there may be uncertainty, or who move to/from Scotland during the year, then record keeping will be important. This will apply whether it is on a day basis or determining main residence. Taxpayers will need to decide his/her status when completing the appropriate tax return. Penalties are likely to be imposed if a taxpayer is deemed to have deliberately assessed his/her taxpayer status incorrectly.
In cases of doubt, taxpayers will need to retain records to support the stance taken.
Split Year Treatment
It will not be possible to be treated as tax resident in the UK for part of the year and Scotland for the other part. Instead, the whole year will be looked at based on the factors above to determine if someone is a Scottish taxpayer or not for the whole year.