The UK Tax Residence Test

16.05.14

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

The UK’s Statutory Residence Test is now a year old. It was a welcome development after the old system and provides much more certainty. However for more complicated cases it can still be rather complex and it is important to understand the detail of the test.

The UK’s Statutory Residence Test is now a year old. It was a welcome development after the old system and provides much more certainty. However for more complicated cases it can still be rather complex and it is important to understand the detail of the test.

All British expatriates need to be aware of this test and how it applies to them. It is possible for HM Revenue & Customs (HMRC) to determine that you are UK resident, even though you believe you are resident elsewhere. The test is a definite process to determine your UK residence status – a status that applies for income tax, capital gains tax and inheritance tax purposes.

To assess your residence status, you need to work through the following three tests in order. If you are non-UK resident under the first test, the other two will not apply. If the second applies, the third is ignored.

Whether you are an ‘arriver’ or ‘leaver’ plays an important part, and this is based on your residence status the previous three years. To determine residence for years prior to 2013/2014, the old rules as set out in HMRC6 continue to apply.

Note that all references to “years” are a UK tax year, and a day in the UK is counted if you are there at midnight.

(1)    Automatic overseas test

If you meet any of the following conditions, you are automatically treated as not resident in the UK:

  • You were not resident in the UK in any of the previous three UK tax years, and are present in the UK for fewer than 46 days in the current year.
  • You were resident in one or more of the previous three years, and present for fewer than 16 days in the current year.
  • You work overseas full time and spend no more than 30 days working in the UK (work day = three or more hours), and no more than 90 days in the UK in the relevant year.

(2) Automatic residence test

You are automatically treated as resident in the UK if you meet any of the following conditions:

  • You spend at least 183 days in the UK in the current tax year.
  • Your only or main home is in the UK.
  • You work full time in the UK for at least 365 days without a significant break from work of 31 days or more, subject to certain conditions.

An “only or main home” is property available to be used by you for at least 91 days, if you have actually used it for 30 separate days or more.

(3)  Sufficient ties test

If your residence position is not determined by the above two tests, the number of days you can spend in the UK in the tax year without being UK resident depends on if you are an arriver or leaver, and the number of connecting ties you have with the UK. These are:

  • Family – spouse and/or minor children live in the UK
  • Accessible accommodation – if available to you for at least 91 days and you spend just one night there
  • Work – if you spend 40 or more days working in the UK
  • 90 days – if you spent 90 days or more in the UK in either of the two previous tax years
  • Country – if you spend more days in the UK than any other single country (only applies to ‘leavers’).

This test operates on a sliding scale, so the more ties you have with the UK, the less time you can spend onshore without becoming UK resident. Conversely, the fewer ties you have, the more days you can spend there before becoming UK resident.

There is a statutory basis for days spent in the UK due to “extraordinary circumstances”, up to a maximum of 60 days. However, this only applies where the individual has no choice and circumstances are unforeseen and beyond their control. Visiting an ill or dying relative is unlikely to be seen as a situation where there is no choice about being in the UK.

The test outlines eight circumstances in which an individual may be able to claim split year treatment. This is important if you are leaving the UK or moving back.

The UK does have a double tax treaties with countries like Spain, France, Portugal, Cyprus and Malta, but it does not provide as much protection as you may think. It is possible to be tax resident in the UK even if you have been paying taxes elsewhere

For peace of mind about your tax residency status, taxes you should be paying and where and the best tax planning for your situation, speak to a professional adviser who understands the intricacies of both UK and your local tax law and how the two interact.

25 April 2014

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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