Statutory Residence Test

Background

Prior to 6 April 2013, the UK had no statutory test to determine tax residency and it was left to case law to guide an individual as to which of the many factors applied to their situation. The new test aims to replicate the outcomes delivered by the previous rules, but will also take into consideration the number of days spent in the UK and connections to the UK.  This will enable individuals to arrive at a clear conclusion as to whether they are UK resident for tax purposes in any given tax year by following what is essentially a tick box exercise.

The Tests

The new test distinguishes between “leavers” (those who have been resident in the UK for any of the past three tax years) and “arrivers” (those who have not been resident in the UK for any of the past three tax years).

There are two layers to the test:

1. The Automatic Residence Test; and

2. The Sufficient Ties Test.

1. The Automatic Residence Test

If an individual meets any one or more of the four Automatic Overseas Tests set out in the table below, then they would be deemed conclusively non-UK resident. If not, then the Automatic UK Tests should be considered.

 

AUTOMATIC OVERSEAS TEST

AUTOMATIC UK TEST

(i) ARRIVERS TO THE UK

In the UK for less than 46 days Present in the UK for 183 days or more

(ii) LEAVERS FROM THE UK

In the UK for less than 16 days Individual has as one home in the UK available for more than 90 consecutive days and either:

  • This is their only home; OR
  • Individual has overseas home but only uses it for less than 30 days in any one tax year.

“Home” = does not necessarily have to be owned by them e.g. living at a parents’ home may be accepted.

(iii) FULL TIME WORK

“Full time work” = 35 hours/week over 12 months

“Working day” = at least 3 hours spent working

  • Full time work abroad;
  • In the UK for 90 days or less; and
  • Working in UK for 30 days or less only.
  • Full time work in the UK for 365 days or more;
  • More than 75% of these days are in UK; and
  • No significant break in work over 30 days (excluding holidays and sickness).
 

(iv) DEATH

  • Death occurs abroad having not been UK resident for 2 years; and
  • Less than 46 days spent in the UK.
  • Death occurs when they were UK resident in each of the 3 preceding years; and
  • Had a home in the UK.
 

If an individual is not conclusively resident or non-resident under the above tests, then the next “Sufficient Ties Test” applies.

2. Sufficient Ties Test

This test considers an individual’s ties to the UK which are as follows:

  • Family – includes spouse, civil partner, cohabiting partner and minor child (exceptions for minor children in the UK for full-time education or who an individual visit in the UK for fewer than 60 days per tax year).
  • Accommodation – available to an individual for more than 90 days in the UK in either (or both) 2011/12 and 2012/13 and they spend at least one or more nights there during the tax year in question.
  • Work – for more than 3 hours a day in the UK for at least 40 days in 2013/14.
  • 90 day – more than 90 days are spent in the UK in either (or both) of the previous two tax years (2011/12 and 2012/13).
  • Country – UK is the country where the greatest number of days are spent during 2013/14. (Please note that this tie only applies if an individual is resident in the UK for one or more of the three preceding tax years i.e. 2010/11, 2011/12 and 2012/13.)

The table below sets out the number of ties that determines whether an individual is UK resident, and depends on:

  1. Whether an individual is an “arriver” or “leaver” (see above); and
  2. How many days are spent in the UK.

 

Days spent in the UK in 2013/14

Arrivers

Leavers

Less than 16

Always non-resident

Always non-resident

16-45

Always non-resident

Resident – if at least 4 ties

46-90

Resident – if at least 4 ties

Resident – if at least 3 ties

91-120

Resident – if at least 3 ties

Resident – if at least 2 ties

121-182

Resident – if at least 2 ties

Resident – if at least 1 ties

Over 183

Always resident

Always resident

Advice

Individuals who expect to spend some time in the UK in this tax year (2013/14) and are concerned about their tax residence status, should consider how the new statutory residency tests will impact their tax position. It is important for such individuals to keep a careful note of the days spent in and out of the UK, in particular, those who are self-employed. Those individuals classed as non-UK resident in the previous two tax years should also take steps to prevent them being classed as UK resident.

It is hoped that the new residence test will provide some clarity to a complex area of law and determining an individual’s UK residence status should now be more straightforward. 

Please note that the above information is simply a brief summary of the new rules and should not be relied upon as legal or tax advice.

This article was written by Ian Bradshaw, Partner, Private Client with assistance from Amantha Seneviratne.

This guide is for general information and interest only and should not be relied upon as providing specific advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.