A new UK statutory residence test is to be introduced with effect from 6 April 2013. The existing rules for determining UK tax residence are uncertain and outdated, and therefore this is a positive step.
Under the current proposal, residence will usually be determined, by a combination of the number of days a person is in the UK, and the number of defined ‘connecting factors’ the person has to the UK. The fewer days an individual is in the UK the more connecting factors will be required before that person is treated as UK tax resident, and visa versa.
There are a few ‘conclusive’ tests under the proposals:
- a person who has not been resident in any of the last three 3 tax years can spend up to 44 days in the UK and remain non-resident;
- a person who has been resident in the UK in one or more of the last three tax years and spends less than 10 days in the UK in a subsequent tax year will remain non-resident;
- a person who leaves the UK to work full-time abroad can spend up to 89 days in the UK (including up to 20 days working) in a tax year and remain non-resident;
- where a person does not fall into one of the above three categories, the following tests apply:
- a person whose only home (or homes) is in the UK will be resident. It is currently unclear what will qualify as a ‘home’;
- a person who works full-time in the UK will be resident;
- a person who spends 183 days or more in the UK in the tax year will be resident.
In all other cases a person’s residence will be determined by looking at the number of days they are in the UK combined with the number of the ‘connecting factors’ that they have to the UK.
‘Arrivers’ & ‘leavers’
The proposals distinguish between:
- arrivers - people coming to the UK for the first time (or after having been non-resident for at least the last three tax years);
- leavers - people leaving the UK after having been resident in any one of the previous three tax years.
‘Arrivers’ who spend less than 90 days in the UK can have significant connections with the UK before being treated as resident. ‘Leavers’ who spend less than 90 days in the UK must have fewer connections to the UK if they wish to be nonresident.
The tables below set out the exact proposals.
The proposals set out an exhaustive list of the connecting factors which will be looked at:
- family - are the person’s immediate family (wife/civil partner and/or children) in the UK? The proposed definition of family could raise concerns for individuals who have UK resident minor children.
- availability of accommodation - does the person have accommodation in the UK? The accommodation does not have to be owned by the individual but merely accessible to him and used by him as a place of residence;
- substantive work in the UK - meaning the person works in the UK for more than three hours on 40 or more days in the tax year;
- UK presence in previous years - did the person spend 90 days or more in the UK in either of the two previous tax years?; and
- more time in the UK than in other countries - does the person spend more days in the UK in the tax year than in any other single country? (this factor is relevant for ‘leavers’ only).
Although the UK Government has rejected the simplicity of a simple day-count residence test, the proposed, exhaustive, defined list of ‘connecting factors’ to be used to determine residence will provide greater certainty for individuals trying to determine their residence status.
Proposed residency tests