UK Residence Test Delayed

A statutory residence test is long overdue in the UK. Expatriates have had to rely on guidance rather than law to determine where the line between being resident and non resident in

A statutory residence test is long overdue in the UK. Expatriates have had to rely on guidance rather than law to determine where the line between being resident and non resident in the UK for tax purposes lies. A number of court cases demonstrate just how fine this line is and HM Revenue & Customs? guidance on the issue, HMRC 6 (previously IR20), has been criticised for being unclear and ambiguous.

So when the Treasury announced last year that it would introduce a statutory test the news was welcomed by expatriates and tax professionals. The test should have come into effect in April 2012, but disappointingly in December the Treasury announced that it would be delayed to at least April 2013. The consultation had raised a number of detailed issues which required ?careful consideration to ensure the legislation achieves its important aim of providing certainty for individuals and businesses?.

While we will hopefully have more information on the government?s response to the consultation this spring, the draft legislation will probably not be published until December as part of the 2013 Finance Bill.

Under the proposals, there are different rules for ?leavers?, ?arrivers?, and those working full time abroad. For leavers and arrivers residence will be based on a combination of day counting and five defined ?connecting factors?.

According to last year?s consultation document, leavers are defined as ?individuals who were resident in one or more of the previous three tax years?. Therefore, even when the new rules start in April 2013, the old HMRC 6 guidance will continue to be relevant for those who left the UK in the previous three years and even for those leaving the UK until 6th April 2016.

We had generally welcomed the proposed new rules. While still retaining some complexity for the non-tax specialist, they would provide more clarity than the current guidance.

The 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 must take personalised advice.