- Individual Tax
- US Tax Overview
- UK Tax Overview
What counts as ‘UK resident’?
Statutory Residence Test
Prior to the introduction of the statutory residence test from 6 April 2013, it was difficult to provide certainty on an individual’s residence status as the UK has not previously had a definitive residence test. The 2013 Finance Bill will contain legislation to put the definition of residence for tax purposes on a statutory footing. The statutory residence test will take effect from 6 April 2013 and sets forth three tests to determine whether an individual is resident in the UK:
- The ‘automatic overseas test’
- The ‘automatic residence test’
- The ‘sufficient ties test’
The Automatic Overseas Test
You are automatically non-resident for a tax year if you meet any one of the following tests:
- You were not resident in all of the previous 3 tax years and present in the UK for less than 46 days in the current tax year,
- You were resident in the UK in one or more of the previous 3 tax years and present in the UK for fewer than 16 days in the tax year,
- You work full time overseas and:
- You spend fewer than 91 days in the UK in the tax year, and:
- The number of days you work in the UK is no more than 31 days (a work day is any day where an individual does more than 3 hours of work).
If you do not meet any of these automatic overseas tests you should then look at the Automatic Residence Test below.
The Automatic Residence Test
If you do not meet the Automatic Overseas Test, you will automatically be treated as resident in the UK if you meet any one of the following conditions:
- You spend 183 days or more in the UK in the tax year.
- You have a home in the UK:
- For a period of more than 90 days and;
- You are present in that UK home on at least 30 separate days during the tax year, and
- Whilst you have that UK home, there is a period of 91 consecutive days when you have no home overseas, or have one or more homes overseas in none of which you are present for more than 30 days during the tax year.
- You work full time in the UK for 365 days or more, subject to certain conditions.
If you do not meet any of the automatic overseas tests or any of the automatic UK tests, then you must look to the ‘sufficient ties test’ to help decide your UK residence status for the tax year.
The Sufficient Ties Test
This test examines your ties to the UK in the following areas:
- Family tie: the individuals spouse or civil partner or minor children live in the UK.
- Accommodation tie: the individual has accessible accommodation in the UK (i.e., it is available for him to use for a continuous period of at least 91 days in a tax year and he spends at least 1 night there). The homes of a close relative are ignored provided the individual spends less than 16 nights there during the tax year.
- Work tie: where an individual works substantively in the UK (employed or self-employed) but does not work full time. The meaning of ‘substantively in the UK’ is defined as more than three hours of work for aggregate of at least 40 days in the tax year.
- 90 day tie: the individual spends 90 days or more in the UK in either of the two previous tax years.
- Country tie: the individual spends more time in the UK than elsewhere.
These ties are combined with day counting to determine whether an individual is resident or not. The more ties an individual has with the UK the less time he can spend here without becoming UK resident.
The rules differ for ‘arrivers’ (those who were not resident in the last 3 years) and ‘leavers’ (those who were resident in one or more of the last 3 years).
(not resident in any of 3 tax years before the tax year under consideration)
|Days spent in the UK||UK ties needed|
|Fewer than 46 days||Always non resident|
|46-90 days||Resident if individual has 4 ties or more|
|91-120 days||Resident if individual has 3 ties or more|
|121-182 days||Resident if individual has 2 ties or more|
|183 days or more||Always resident|
(if you were resident for one or more of the 3 tax years before the tax year under consideration)
|Days spent in the UK||Impact of Connection factors on residence|
|Fewer than 16 days||Always non resident|
|16-45 days||Resident if 4 ties or more|
|46-90 days||Resident if 3 ties or more|
|91-120 days||Resident if 2 ties or more|
|121-182 days||Resident if 1 tie or more|
|183 days or more||Always resident|
The Government will reform the concept of ‘ordinary residence’ to eliminate it as far as possible. For individuals who perform employment duties in the UK and overseas and are not ordinarily resident in the UK, overseas workday relief is currently available. In future, this relief will only be available to non domiciled individuals who have been non resident for 3 tax years and claiming the remittance basis. It will apply for a fixed period of residence in the UK regardless of whether the individual settles or intends to settle in the UK.
Split Year Treatment
If during a year you either leave the UK to live or work abroad or come from abroad to live or work in the UK you may be eligible for the tax year to be split into periods of residence and non residence.
There are five sets of circumstances where you may be eligible for split year treatment:
- You leave the UK to work full time overseas
- You leave the UK because your partner has started full time work overseas
You leave the UK and cease to have a home in the UK to take up residency elsewhere
- You come to work full time in the UK
- You come to live in the UK and start to have a home in the UK
Temporary Non Residents
Certain income arising during a period of temporary non residence will become taxable on an individual’s return where an individual becomes resident in the UK again within five years of leaving and they were resident in the UK for a period of at least four out of the previous seven tax years.
The income this will apply to will be:
- Distributions from close companies
- Chargeable events gains from life assurance policies
- Lump sum benefits from employer financed retirement benefits schemes
This is similar to the current anti avoidance legislation for capital gains realized by temporary non residents.
Did you Know?
Fact SevenThanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
Fact SixThe IRS is actively looking for non compliant US persons.
Fact FiveIt takes an average of 16 hours to do IRS Form 1040.
Fact FourThere are over 500 IRS tax forms.
Fact ThreeSince 1916, illegal income has been taxable.
Fact TwoUS persons must file tax returns no matter where they live and work.
Text One7 million Americans abroad
only 500,000 compliant