When it was introduced on 6 April 2013, the Statutory Residence Test was the first time the UK had any legislation on the area of residence and how to determine whether you are resident or not-resident for UK taxation.
It is important to consider the complexities of the rules and everyone’s circumstances are completely different.
The basic principle of UK residence is that if you are in the UK for more than 183 days in a tax year you are UK tax resident.
Otherwise there are three tests which need to be looked at when determining your residence position and they run consecutively and are applied in the following order:
- Automatic Overseas tests
- Automatic UK tests
- Sufficient Ties test
Each of the tests are considered separately and if you meet any of the conditions for example in the automatic overseas test, you do not need to look at the rest of the tests.
The below is just an overview of the three tests as the guidance produced by HM Revenue & Customs runs to over 100 pages. Broadly speaking it is easier for someone who is already not resident to ensure that they remain not resident, than say someone who is wanting to leave the UK for the first time or return to their country of origin after spending significant time in the UK.
Automatic Overseas test
Within this part of the Statutory Residence Test, there are five tests to consider. Tests 4 and 5 relate to when an individual passes away during the tax year concerned and these will not be looked at any further here.
If any of the three tests below are met then you are not resident for UK taxation:
- You spend fewer than 16 days in the UK during the tax year and you were resident in one or more of the three preceding UK tax years.
- You spend fewer than 46 days in the UK during the tax year and you were not resident in any of the three preceding UK tax years.
- You work full time overseas, there are no significant breaks from your overseas work, you spend fewer than 91 days in the UK and the number of days on which you do more than three hours work in the UK is less than 31.
There is a specific calculation which needs to be prepared to see if the working full time overseas test is met, but, broadly speaking this must be on average more than thirty five hours per week.
Automatic UK Tests
If you do not meet any of the Automatic Overseas tests, then the Automatic UK tests need to be looked at. There are four tests and the fourth one relates to an individual passing away during the year. This will not be considered here.
If any of these tests are met then you will be treated as UK tax resident for the tax year concerned:
- You spend at least 183 days in the UK in the tax year.
- You have a home in the UK which is available for a period of 91 consecutive days or more (at least 30 of which must fall within the tax year) and that home is actually used for at least 30 days in the tax year and you either have no home(s) overseas, or if you do, you spend fewer than 30 days in any home overseas in the tax year. The definition of home is different to that of accommodation.
- You work full time in the UK for any 365 day period, part of which falls in the tax year. There must be no significant break from work and there are other conditions which must be met.
Sufficient Ties Test
If you do not meet either the Automatic Overseas tests or the Automatic UK tests, then the final test to look at when determining your residence status is the Sufficient Ties test. This test looks at the number of connecting ties you have to the UK, the number of days you spend in the UK and your residence position in the three previous UK tax years. There are five connecting factors and these are:
- Family Tie – this is a connection if your spouse, civil partner, cohabiting partner or minor child is UK tax resident. There are exemptions for minor children if they are UK tax resident only because they are in full time education and spend a limited amount of time in the UK outside of term time.
- Accommodation Tie – this is a connection if there is accommodation in the UK available for a continuous period of at least 91 days in the year and you spend at least one night in that accommodation. Accommodation at the home of a close relative can be ignored if you spend fewer than 16 nights there per UK tax year. The definition of accommodation is different to that of a home.
- Work tie – this is a connection if you work in the UK for more than three hours a day on at least 40 days in the tax year. The definition of work in the UK is fairly broad and includes time spent travelling, training and on garden leave.
- 90 day tie – this is a connection if you have spent more than 90 days in the UK in at least one of the previous two UK tax years.
- Country tie – this is only applicable if you were resident in one of the three previous tax years. This is a connection if the UK is the country where more time is spent here than any other country during the tax year.
When determining your residence position under the Sufficient Ties test, there is a difference in the number of days you can spend in the UK, if you were not resident in the UK during any of the three previous UK tax years as you are known as an “arriver” as against if you were resident in the UK in one or more of the preceding three tax years as you will be known as a “leaver”.
The number of days spent in the UK is compared with the number of connecting ties to determine residence as follows:
|Number of days spent in the UK||Number of ties for “arrivers” to be resident||Number of ties for “leavers” to be resident|
|16-45 days||Always non-resident||4 ties or more|
|46-90 days||4 ties||3 ties or more|
|91-120 days||3 ties or more||2 ties or more|
|121-182 days||2 ties or more||1 tie or more|
When counting days in the UK, a day is counted when you are in the UK at midnight. There are some exceptions to include when you are in transit through the UK.
Days of departure will not normally be included in the day count, unless the deeming rule applies. The deeming rule is applicable if you were UK tax resident in one of the three preceding UK tax years and have at least three connecting factors to the UK for the tax year concerned.
There are certain situations when days spent in the UK up to a maximum of 60 days are exempt if they are considered as exceptional circumstances.
If you spend a lot of time overseas, or are arriving in or leaving the UK, and are hoping to be treated as not resident for tax purposes, the Statutory Residence Test has brought certainty when looking at UK residence. However it is important that it is looked at in detail and your residence position is reviewed every year to ensure that there are no hidden surprises for you.
In future articles I will explain more about spilt years when you are arriving in or leaving the UK, and about the UK tax rules for people who qualify as non-resident.
If you would like to discuss any of these matters further, please do not hestiate to contact me on firstname.lastname@example.org or 01273 70120.
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