Statutory definition of tax residence – a summary

The statutory residence test (SRT) is designed to provide a simple process and clear outcome for the vast majority of people whose circumstances are straightforward.  For most individuals the SRT will have no impact on their residence status, however, for those with complicated affairs, such as those who travel to and from the UK frequently or who have connections with a number of different countries, there will likely be some impact.

The Government are proposing that the SRT should take account of both the amount of time the individual spends in the UK and the other connections they have with the UK. 

The SRT will make a distinction between:

Arrivers – defined as individuals who were not UK resident in all of the previous three tax years; and

Leavers – defined as individuals who were resident in one or more of the previous three tax years.

The test will have three parts:

Part A – contains conclusive non-residence factors that would be sufficient in themselves to make an individual not resident.

Part B – contains conclusive residence factors that would be sufficient in themselves to make an individual resident.

Part C - contains other connecting factors and day counting rules which will only need to be considered by those whose residence status is not determined by Part A or B.

Where an individual satisfies any of the following conditions of Part A for a tax year they will definitely not be UK tax resident.

• Non UK resident in all of the three previous tax years, and present in the UK for fewer than 45 days in the current tax year;
• UK resident in one or more of three previous tax years, and present in the UK for fewer than 10 days in the current tax year; and
• Leaves the UK to carry out full-time work abroad, providing he/she is present in the UK for fewer than 90 days in the tax year, and no more than 20 days are spent working in the UK during the tax year.

Where Part A does not apply, an individual will be conclusively UK resident for the tax year under Part B if they meet any of the following conditions:

• Are present in the UK for 183 days or more in a tax year; or
• Have only one home and that home is in the UK (or have two or more homes and all of these are in the UK); or
• Carry out full time work in the UK.

Where both Part A and Part B apply then Part A will take precedence and the individual will be regarded as non UK tax resident.

Where an individual’s residency status is not determined by Part A or Part B, then Part C needs to be considered.  Under Part C an individual would simply need to compare the number of days they spend in the UK against a small number of clearly defined connected factors. 

The connected factors are:

• Family – the individual’s spouse or civil partner or common law equivalent (provided the individual is not separated from them) or minor children are resident in the UK;
• Accommodation – the individual has accessible accommodation in the UK and makes use of it during the tax year (subject to exclusions for some types of accommodation such as short–term accommodation in hotels);
• Substantive work in the UK – the individual does substantive work in the UK (but does not work in the UK full-time);
• UK presence in previous year – the individual spent 90 days or more in the UK in either of the previous two tax years;
• More time in the UK than in other countries – the individual spends more days in the UK in the tax year than in any other single country.

These connected factors would be combined with days spent in the UK into a “scale” to determine whether the individual is UK resident or not.

There will be separate scales for arrivers and leavers, reflecting the principle that it should be harder for leavers to relinquish residence than for new arrivers to acquire UK tax residency.

Days spent in UK	Impact of connected factors on residence status
Fewer than 45 days	Always non-resident
45-89 days	Resident if individual has 4 factors (otherwise not resident)
90-119 days	Resident if individual has 3 factors (otherwise not resident)
120-182 days	Resident if individual has 2 factors (otherwise not resident)
183 days	Always resident

HMRC have provided an online tool available at www.hm-treasury.gov.ukconsult_statutory_residence_test.htm.  This provides a step by step guide on whether someone is resident or non-resident.

The Consultation period will run from 17 June 2011 to 9 September 2011. The draft legislation will be published prior to the UK Budget 2012.

Whilst HMRC have clearly taken the opportunity to tighten the rules around residency moving towards a SRT means individuals are able to plan accordingly and with independent advice ensure they plan in a tax efficient way.