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Legal update: Welsh taxpayer status

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23 October 2018

From 6 April 2019 the Welsh Government will be able to set its own tax rates for ‘Welsh taxpayers’. 

If you live in Wales and are classed as a Welsh taxpayer your income tax will continue to be collected by HMRC.  However, instead of all the income tax paid by Welsh taxpayers going to the UK Government, part of the tax paid will go directly to the Welsh Government to be spent on public services in Wales.

In practice, the UK Government will reduce the basic, higher and additional rates of income tax charged on non-savings and non-dividend income for Welsh taxpayers by 10 pence. The Welsh rates set by the Welsh Government will then be added to this. The Welsh Government proposes to set the first Welsh rates of income tax at 10p: this means the combined rates of income tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers.

Individuals who have been identified by HMRC as Welsh taxpayers will receive a notification letter in November informing them of their Welsh taxpayer status. 

In the majority of cases the key aspect of the test for Welsh taxpayer status rests on establishing an individual’s ‘place of residence’.  HMRC considers that an individual’s ‘place of residence’ is a place that a reasonable onlooker, with knowledge of the material facts, would regard as the dwelling in which that person habitually lives: in other words, his or her home. 

HMRC has said that it is not possible to provide an absolute definition of the term.  There may therefore be cases, in particular if an individual has two or more places of residence, where the position is not clear and case law will need to be referred to in order to establish the place of residence.

More information and confirmation of the Welsh tax rates will be announced in the UK and Welsh budgets later this month.