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bigduckontax
bigduckontax, Accountant
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I have a quick question regarding UK residency status for

Resolved Question:

Hi,
I have a quick question regarding UK residency status for national insurance purposes. I live abroad, but I recently bought a property in the UK, which I am renting out to a friend. I don't intend to return anytime soon and cannot live at the property.
We are trying to decide whether to draw up a licence agreement or a tenancy agreement. A licence seems to be better for a few reasons, but I'm a bit concerned that it might affect my residency status because it would be considered that I have a residence in the UK - which I understand a long-term tenancy agreement would not.
So, my question is: Would a licence agreement alter my residency status for national insurance purposes, and thus affect the type of voluntary contributions that I can pay?
Thanks in advance!
Submitted: 1 month ago.
Category: Tax
Expert:  bigduckontax replied 1 month ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

A few points need to be cleared up though before i can proceed.

What is your nationality?

When you moved abroad did you complete a Form P85 and send it to your tax office?

Are you current;y paying voluntary NI contributions?

Customer: replied 1 month ago.
Hi Keith,Thanks for your quick response.1. I am a British citizen.
2. I did not complete a P85 as I file a self-assessment tax return, but HMRC are aware of when I left the country, and I pay tax as a non-resident. My understanding is that my residency status for tax and residency status for NI are not necessarily the same, though.
3. I am paying voluntary NI contributions (class 2).
Expert:  bigduckontax replied 1 month ago.

I would advise you to complete a Form P85 and send it to your tax office. Fortunately there is no time limit as to its submission, it is available on the web and can be filed on line. On receipt HMRC will formally classify you as non resident. You will be surprised at the number of ex pats who do not file this vital form and then get themselves into endless trouble tax wise. The fact that HMRC consider you non resident is irrelevant; submit a P85, belt and braces.

As certain incomes world wide are taxed in country of origin, in particular pensions and rentals, persons can still be classified non resident even if they have to make annual self assessment to cover their individual positions. Of course many received protection from tax through Double Taxation Treaties or Conventions.

Do not let on a licence. I commenced my working life as a trainee Valuation Surveyor with the long defunct LCC, and although a licence often is considered a form of tenancy you would be in a much safer position using a tenancy agreement drawn up by a solicitor, although you can buy a ready made one in W H Smiths, the stationers! Whether you use a licence or a formal tenancy agreement has no effect on your residential status. Your personal location does.

As regards ***** ***** contributions, are you working abroad?

Customer: replied 1 month ago.
Are you sure about the P85? I have completed my tax returns as described here: https://www.gov.uk/tax-right-retire-abroad-return-to-ukI was self-employed in the UK and have been filing self-assessment tax returns for a long time, so I was pretty sure that this sentence applied to me: "Send a Self Assessment tax return instead if you usually complete one, for example if you’re self-employed." I think I also called them to check this at the time, but I can't say that with 100% confidence.As I understand my UK tax situation, I have to file a self-assessment tax return in order to get a rebate on my UK bank interest (which falls inside my personal allowance), and also to declare my rental income (when it starts), but HMRC aren't interested in my worldwide income.I live and work full time abroad; with the intention of remaining indefinitely. The reality of the situation is of course that I do not live in the UK, but I still had some money there which I wanted to invest in property. However, I was under the impression that residency was a little more complicated when it came to NI.So if I understand your advice correctly, I should not use a licence, but not because of anything to do with my residency status. Just because it's not a very good idea. Right? :)
Expert:  bigduckontax replied 1 month ago.

Please take my word for it and complete a Form P85. This could save you endless trouble in the long term. I have known of cases where the taxman has said individuals are non resident and then denied the position because this form was not submitted, screaming, shouting and demanding back tax, interest and levying penalties, As I said, belt and braces. You hope they will not be interested in your world wide income until some twerp in HMRC notices the lack of a P85 and comes down on you like a ton of bricks. I have been at a meeting with the Inland Revenue as it was then where a tax inspector was produced who demanded the immediate settlement in cash of tax which was not even due. Needless to say he did not get it, merely reported to his superiors, and the company received an apology from the Head of the Office concerned almost by return of post.

The rules for Class 2 NI are relatively simple. The Gov UK Web Site advise:

'Class 2 - but only if you worked in the UK immediately before leaving, and you’ve previously lived in the UK for 3 years in a row or paid 3 years’ National Insurance'

If you do not conform you may be pouring money down the drain, so be a tad careful.

As for licence verses tenancy, correct. The LCC used to let advertising hoardings by licence and every now and then would have trouble with big boys invoking the Landlord and Tenant Act, 1954. After a bit the penny dropped as the Council declined to let space for vacant sites which in the long term were due for redevelopment. The regular 'Arthur Daleies' of the area were a better proposition. If you asked them to go they were off in a flash!.

Customer: replied 1 month ago.
Wow, OK, thanks for the information about the P85. I've just submitted that now.I'm pretty sure that I'm within the rules for class 2 NI, unless they decide for some reason that I haven't properly left the UK, which was why I was concerned about my residence status for NI purposes. Do you think there is any problem there? I'd imagine I'm a pretty textbook expat case, in that I've moved away permanently and am working full-time, but I wasn't sure if acquiring property in the UK would change that.My friend's solicitor in the UK is advocating for a licence on the grounds that we're close friends and all the red tape of a formal tenancy agreement seems needless, which is one of the reasons I came on here - it's always useful to get a second opinion!
Expert:  bigduckontax replied 1 month ago.

Property income in any event does not attract NI contributions. Providing you conform to the 'worked in the UK immediately before leaving, and you’ve previously lived in the UK for 3 years in a row or paid 3 years’ National Insurance' you should be in the clear.

I could not possibly comment, but friends have been known to fall out! From my experience in managing Council commercial properties I would always opt for a tenancy agreement.

bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 month ago.

Thank you for your support.