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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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  • Applying the UK statutory residency tests to the residency status of individuals relocating from the UK

    1 October 2021

    Alexander Wilson

    Should I stay or should I go?

    “Darlin’ you got to let me know”, pleaded Joe Strummer, lead singer of The Clash. We all want a straight answer, a simple answer that we can just take away and implement. Sadly, this is not always the case when it comes to tax advice as each case is unique depending on the client’s individual circumstances. 

    A great example of this is the question, “How long can I spend in the UK without triggering UK residency?” Of course, the client wants an answer that goes something like, “x days, no more than x days.” Can it ever be as simple as that?

    Unfortunately, given the way in which the statutory residency test applies, an answer to such a question may not be all that straightforward. Inevitably, your answer will contain a few ‘ifs’ and a smattering of ‘buts’.

    Background

    The UK operates three statutory residency tests which seek to apply a number of conditions that consider an individual’s circumstances and physical day counts in the UK. 

    The statutory tests apply as follows:

    • Automatic overseas tests – If any of these tests are met, an individual will not be treated as tax resident in the UK in respect of the relevant tax year. If none of these are met, we would need to move on to the automatic UK tests
    • Automatic UK tests – One will be treated as tax resident in the UK if they meet any of these tests. If not, we would need to move to the sufficient ties test.
    • Sufficient ties test – This test considers whether an individual has specific ties to the UK and day counting rules which will need to be considered only if the residence status is not determined by the two automatic tests above.

    To give an example, we recently advised a client (Mr X) who wished to relocate to Cyprus. Mr X would retain interests in the UK and so it would be likely that he would spend some time in the UK going forward. As such, understanding the implications of spending a certain number of days (per tax year) overseas and the UK on the residency status of Mr X were very important.

    The Automatic Overseas Test

    Mr X was leaving for Cyprus to manage his businesses abroad which he intended to run as a director of the various entities he was a controlling shareholder of. This was important because if he worked full-time oversees, he could spend up to 90 days in any one year in the UK and still meet the automatic overseas test (subject to certain conditions), resulting in Mr X being treated as non-resident in the UK for that particular tax year.

    Directorship of a company is work that counts toward full-time work but managing a property business would not (it being investment activity, rather than trade).

    If Mr X did not work full-time outside the UK, then he could return to the UK for no more than 15 days for two years after departure and then no more than 45 days from year three onwards.

    Of course, we also have to look at the other tests to provide a comprehensive answer because Mr X could fail to meet this test and yet still not fall to be UK resident, depending on the operation of the other tests.

    The Automatic UK Test

    The automatic UK test was more straightforward for Mr X. Spending fewer than 183 days in a year in the UK would not be a problem, given the limitations arising from the overseas test.

    The trickier part to consider was that Mr X would have a home available to him in the UK. If he spent 30 days in a year living there and fewer than 30 days in his overseas home in the same year, he could meet the automatic UK test.

    So now, not only are we considering how long Mr X can have in the UK, but also suggesting that he makes sure that he spends at least 30 days in a single home outside of the UK.

    Of course, while it is desirable for Mr X to meet the automatic overseas test, he wants to avoid meeting the automatic UK test and if he succeeds in that, then the sufficient ties test comes into play.

    Sufficient Ties

    Under the sufficient ties test, the number of days Mr X can spend in the UK per tax year without being treated as non-resident in the UK will depend on his number of ties with the UK.

    As Mr X intends to retain some or all of his residential portfolio in the UK, there is a risk that he could have available to him accommodation in the UK. Given that staying with close relatives for as little as 16 nights also gives rise to accommodation being ‘available’, this tie is easily established unintentionally or unwittingly.

    Another tie that could easily be established by Mr X would be working in the UK for 40 days or more. This need not be continuous and only three hours of working in the UK in a day is needed for a day to qualify. Worse, such days may be intermittent. Mr X will be retaining several business interests in the UK, so caution would be needed here.

    If those two ties were established in the same year, Mr X would be limited to only 120 days in the UK. But if he decided to spend more than 90 days in the UK, another tie would be established, so for practical purposes, the existence of those ties would limit Mr X to no more than 90 days.

    As Strummer wisely observed, “If I go there will be trouble”. As our example shows, applying the statutory residence test for a client looking forward to their situation before it has crystallised into certainty requires considerable attention to detail and a firm awareness of the impact one part of the Statutory Residency Tests may have on any other part.

    Given how easily plans can change as life events unfold, giving your client clear advice which covers the most likely scenarios can be complex. 

    At ETC Tax, we have specialist expertise in providing tax advice in relation to residency issues for your clients. Get in touch today for specialist advice you can trust.

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    Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to - respond / call you back - to discuss your enquiry and you will not be charged for this time.

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