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HMRC launches complex new Statutory Residence Test

By RJP LLP on 28 June, 2013

Earlier this year HMRC introduced a new statutory residence test, which has been designed to provide greater certainty as to whether or not individuals are UK resident for tax purposes. It is a welcome development as many clients have faced years of uncertainty over their residence status. However as with many such initiatives, the rules are unfortunately complex and it may be necessary to obtain professional advice before your residence status can be determined conclusively.

Although the test does not have retrospective effect, it could be the case that someone who has previously been considered to be non UK resident becomes UK resident with effect from 6 April 2013. There are a number of stages to the test and a variety of rules to apply in order to determine status. Of these, the ‘automatic overseas test’ is the first port of call since if you ‘pass’ this test you can conclusively be considered to be non UK resident and you need proceed no further!

The basic rules of the new residence test(s) are:

You are non-UK resident for a tax year if you meet any of the automatic overseas tests.

You are UK resident for a tax year if you do not meet any of the automatic overseas tests; and you meet:

  • one of the automatic UK tests; or
  • the sufficient ties test.

Detailed review of the 3 different components of the residence test

The Automatic Overseas Tests

 

If you meet any one of these tests you are non-UK resident:

  1. You were resident in the UK for one or more of the previous 3 tax years and you spend fewer than 16 days in the UK in the tax year;
  2. You were not resident in the UK for any of the 3 preceding tax years and you spend fewer than 46 days in the UK in the tax year;
  3. You work full time overseas throughout the tax year without any significant breaks (there is a complex calculation to define both  ‘full time’ and ‘significant breaks’ and it is advisable to take advice if you fall within this test) and:
    • You spend fewer than 91 days in the UK in the tax year;
    • The number of days in the tax year on which you work for more than 3 hours in the UK is less than 31.

If, having taken this test, you are not conclusively non-resident, then you must move on to the next level, which is the ‘automatic residence test’.

The Automatic Residence Tests

 

If you meet any one of these tests you will be automatically UK resident:

  1. You spend 183 days or more in the UK in the tax year;
  2. You have a home in the UK during all or part of the tax year. You will meet this test if there is at least one period of 91 consecutive days, at least 30 of which fall in the tax year, when you have a home in the UK in which you spend a sufficient amount of time and either you:
    • Have no overseas home; or
    • Have an overseas home or homes in each of which you spend no more than a permitted amount of time.

This test is subject to detailed calculations; therefore if you think you fall within this test you should take advice to confirm the position.

  1. You work full time in the UK for any period of 365 days, with no significant break from UK work and:
    • All or part of the 365-day period falls within the tax year;
    • More than 75% of the of the total number of days in the 365-day period when you do more than 3 hours of work are days when you do more than 3 hours of work in the UK;
    • At least one day in the tax year is a day on which you do more than 3 hours of work in the UK.

This is a complex test and if you think you may fall within it, you should take advice.

The Sufficient Ties Test

If, on the basis of the first two tests, you are not conclusively resident or non-resident, the ‘sufficient ties’ test will be applied to determine your residence status for a tax year. This sets out a further five ties to the UK which must be considered, together with the number of days spent in the UK, in order to determine your residence.

There are five elements to the connecting ties test. If you were non UK resident for any of the preceding three tax years you will need to consider the first four ties, and if you were resident in the UK for one or more of the three preceding tax years you will also need to consider the fifth tie.

The five connecting ties are:

  1. Family – spouse, civil and common law partner, or minor children in the UK;
  2. Accommodation – having accommodation in the UK which is available for a continuous period of at least 91 days (ignoring breaks of less than 61 days) and you spend at least one night there;
  3. Substantive work in the UK – 40 working days or more (a working day is defined as more than 3 hours of work);
  4. UK presence in the previous 2 tax years – more than 90 days in either of the previous two tax years;
  5. More days spent in the UK in a tax year than in any other single country. This applies to leavers only and is designed to catch leavers who do not take up residence in any other country following a period of UK residence.

The number of days you spend in the UK in a tax year will dictate the number of UK ties that are needed for you to be UK resident.

Table: Ties required to verify residence or non-residence status

 

The table below sets out how many ties need to be present for you to be resident or non-resident in the UK, this depends on the number of days spent in the UK and also whether you are an ‘arriver’ or a ‘leaver’.

Days in UK Arrivers – persons not resident in the UK in previous 3 tax years Leavers – persons resident in the UK in at least 1 of previous 3 tax years
Less than 16 Always non-resident Always non-resident
16 - 45 days Always non-resident Resident only if at least 4 ties apply
46 - 90 days Resident only if at least 4 ties apply Resident only if at least 3 ties apply
91 - 120 days Resident only if at least 3 ties apply Resident only if at least 2 ties apply
121 - 182 days Resident only if at least 2 ties apply Resident only if at least 1 tie applies
183 days or more Always resident Always resident

Further conditions for ‘split’ tax years

The statutory residence test is designed to determine residence status for the whole tax year. However, if part way through a tax year, you leave the UK to live or work abroad or come from abroad to live and work in the UK, and certain conditions are met, the tax year will be "split" into two parts. In one part of the tax year you will be treated as UK resident and in the other part you will be treated as non-UK resident. Again if this scenario might apply to your own circumstances, it is important to seek advice from a tax specialist.

For more information on tax planning for non UK residents or for support in determining your UK residence status, please contact Lesley Stalker by emailing las@rjp.co.uk.

 

 

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