Temporary Non-Residents Targeted by HMRC: What You Need to Know

Recently, HMRC has been reaching out to taxpayers who were 'temporarily non-resident' in the UK and may not have fully declared their income or capital gains for those periods. This article explains what "temporary non-residence" means, why HMRC is sending these letters, and what taxpayers should do next.

Understanding Temporary Non-Residence

Temporary non-residence refers to situations where a person who was resident in the UK leaves the country and is non-resident for a short period— broadly less than five years —before returning. The rules are designed to prevent taxpayers from avoiding UK capital gains tax (CGT) by selling assets they held prior to leaving the UK, while abroad and then returning to the UK in a short time frame.  The rules also apply to certain types of income e.g. pension drawdown and distributions paid by close companies.

If you were UK resident for at least four of the seven tax years before departure, then lived outside the UK for five years or less, and later resumed UK residence you will be subject to the temporary non-residence rules.   

This means capital gains from assets you owned prior to your departure and disposed of during your non-residence period will need to be reported and taxed in the tax year you come back to the UK. Similarly certain types of income could also be brought back into charge in the year of return.   

HMRC’s Focus and Letters to Taxpayers

HMRC has sent letters to individuals who:

• Declared themselves non-UK resident in their self-assessment tax return for at least one tax year since 2018-19.
  
  
• Met the conditions to be classed as temporary non-resident i.e. returned to live in the UK.
  
  
• They believe received income or disposed of assets during their period of non-residence which are subject to the temporary non-residence rules.
  
  
• Failed to declare all or part of that income or those gains on the return for the first tax year after becoming UK resident again.

The letters ask recipients to review their tax returns from 2018-19 onwards and ensure all income and gains have been reported correctly.

What Should Taxpayers Do?

If you receive such a letter from HMRC, you have 60 days to respond with any necessary amendments or disclosures:

• For errors in recent years (2023-24 or 2024-25), amend your self-assessment tax return.
  
  
• For earlier years, use HMRC’s digital disclosure service to report inaccuracies unless you believe the error was deliberate, in which case the contractual disclosure facility should be used.
  
  
• If you believe your returns are correct, notify HMRC you have carried out a review and confirm your position.

Potential Penalties and Interest

HMRC’s letter explains that interest will be charged on any late tax payments related to unreported gains or income. There may also be penalties based on the nature and severity of any inaccuracies found. Taking prompt action can help mitigate penalties.

Important Considerations

• Assets acquired during the period of temporary non-residence are generally not subject to UK CGT on disposal if sold while non-resident.
  
  
• Double taxation relief may be available if you paid foreign tax on the gains during your absence.
  
  
• The rules can be complex, so professional tax advice is recommended if you are unsure about your status or tax filings.

This update is critical for anyone who lived outside the UK temporarily but then returned, especially if they sold assets or received income abroad. Ensuring your tax affairs are complete and accurate will help avoid HMRC investigations and unexpected tax bills.

We can help to review your tax position, identify if there is an underpayment of tax and advise on the best approach to disclose this to HMRC.  If we identify that everything is in order and a disclosure is not required we can also write to HMRC on your behalf to explain this.

To explore our full range of Private Client Tax Services, click this link.

📞Use the form at the bottom of the page to get in touch with a qualified tax advisor familiar with UK temporary non-residence rules and capital gains tax compliance.