Carraghyn - Chartered Directors

New Statutory Residence Test Comes Into Effect

On 6 April 2013 a new statutory residence test, designed to provide greater certainty as to whether or not individuals are UK resident for tax purposes, came into effect in the UK. However whilst this new test was intended simplify the whole question in point of fact, like so many other “simplifications” it has turned out to be a pretty complex process and anyone who might be affected, especially those who don’t fall into the “automatic” categories would be well advised to obtain professional advice as soon as possible.

Although the test does not have retrospective effect, someone who has previously been accepted as being non UK resident could become UK resident with effect from 6 April 2013 without there being any change in their circumstances.

It is also important to bear in mind that some of the rules differ depending on whether the person is an “arriver” (someone moving to the UK from abroad) or a “leaver” (someone moving from the UK elsewhere).

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 can ignore the rest of this article.

The basic rules are:

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

  1. You are UK residentfor a tax year if:
    1. You do not meet any of the automatic overseas tests; and
    2. You meet:

                                 i.            one of the automatic UK tests; or

                                ii.            the sufficient ties test

 There are three 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 three 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 three 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:

a)       You spend fewer than 91 days in the UK in the tax year

b)       The number of days in the tax year on which you work for more than three 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:

a)       Have no overseas home; or

b)       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:

a)       All or part of the 365-day period falls within the tax year;

b)       More than 75% of the of the total number of days in the 365-day period when you do more than three hours of work are days when you do more than three hours of work in the UK;

c)       At least one day in the tax year is a day on which you do more than three 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 two 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. 

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

(not resident in UK in the previous 3 years)

Leavers

(resident in UK in at least one of the previous three tax years)

Less than 16

Always non-resident

Always non-resident

16 – 45 days

Always non-resident

Resident if at least 4 ties apply

46 – 90 days

Resident if at least 4 ties apply

Resident if at least 3 ties apply

91 – 120 days

Resident if at least 3 ties apply

Resident if at least 2 ties apply

121 – 182 days

Resident if at least 2 ties apply

Resident if at least 1 tie applies

More than 183 days

Always resident

Always resident

 

 

 

Please note that in most circumstances a day is counted if you are in the UK at midnight so arriving one day and departing the next would count as one day. There are exemptions which may apply if you are in transit or in the UK for exceptional circumstances, such as for medical treatment for you or a family member. 

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.

 You can read more tax related articles at our sister website - Link4Business

Follow Us:

  • Facebook: Carraghyn
  • Google+: 107302261143529823760
  • Linked In: company/carraghyn-ltd
  • Twitter: carraghyn

Login

You are here: Home Carraghyn's Blog New Statutory Residence Test Comes into Effect