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Update to UK Statutory Residence Test

[Update to the previously published entry “UK Statutory Residence Test to take effect April 2013. The number of days resident in the UK has changed from 10 days to 15 days.]

The UK government has recently announced that it will legislate the statutory residence test (SRT) to take effect from 5 April 2013 and intends to introduce reforms to ‘ordinary residence’ at the same time.

The current rules that determine tax residence for individuals are complicated and unclear.  The government announced in the Budget of last year that it would introduce a statutory definition of tax residence which aims to create clear rules that provide greater certainty for taxpayers.

HMRC is reviewing the new rules and seeking views on their design and implementation before they are written in statute.  HMRC is also considering the possibility of providing an interactive online tool to enable individuals to self-assess their residence status when the new statutory definition is introduced.

HMRC’s view is that for the majority of individuals the SRT will have no impact on their residence as they will remain clearly resident or non-resident.   The introduction of a statutory residence test is to be welcomed as the proposed rules allow individuals to assess their UK residence status with a higher degree of certainty than is currently the case.  The government wants to ensure that individuals cannot become non-resident without reducing their ties and connections with the UK, however, they also recognise that an individual should not be regarded a UK resident if there is little connection with the UK.  In determining their tax residence, individuals will take into account certain specified connection factors with the UK and the number of days spent in the UK.

The proposed tests fall into three parts and are as follows:

Part A: Conclusive non-residence
If all of the following conditions are met, an individual will not be resident in the UK:

  • Not resident in UK for all of previous 3 tax years and present in the UK for less than 45 days in the current tax year; or
  • Resident in the UK for more than 1 of the previous 3 tax years and present in the UK for fewer than 15 days in the current tax year; or
  • Works full time abroad (spends less than 20 days working in the UK in the year and less than 90 days in all).

Should an individual not fall under any of the above, the next test should be considered.

Part B: Conclusive residence
An individual will be resident in the UK if the following conditions apply:

  • Is present for 183 days or more in a tax year;
  • Has only one home, and that home is in the UK (or two and both are in the UK)

If an individual does not meet any of the above conditions then they are not necessarily non-UK resident, but they need to consider the final part of the test.

Part C: other connection factors and UK days
This test links the number of days an individual can spend in the UK with their UK connections.  The connections are defined as follows:

  • Immediate family
  • Accommodation (the individual has accessible accommodation in the UK and makes use of it during the tax year)
  • Substantive work in the UK
  • UK presence in either of the previous 2 years (90 days or more)
  • More time in the UK than in other countries

The trade-off between connection factors and days of presence is as follows:

UK Statutory Test Days of Presence

The concept of ordinary residence is also currently under review and it is anticipated that this will be abolished altogether.

As the rules have only been released for discussion and consultation at this point we would suggest that you seek advice should you have any queries or concerns in respect of the proposed changes and how this will impact your individual circumstances,  The rules may of course be changed before they are implemented.

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