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  • Making sense of the statutory residence test (“SRT”) … Part one

    13 June 2020

    Andy Wood


    A person’s residence status – for the purposes of this article whether they are resident for tax purposes in the UK – is incredibly important. It determines what taxes are payable and the quantum of such payments.

    With this in mind, one might be slightly surprised that it took until the 6 April 2013 for the legislators to enshrine a statutory test of residence. Prior to this, it was generally the piecemeal body of case law which determined someone’s status along with HMRC’s long standing guidance set out in IR20.

    Residence status – liability to taxes

    Tax UK resident Not UK resident
    Income tax (IT) Subject to UK IT on worldwide income  Subject to UK IT on UK income only
    Capital Gains Tax (CGT) Subject to UK CGT on worldwide chargeable gains Not subject to UK CGT on gains (other than residential property since 6 April 2015)
    Inheritance Tax (IHT)  Residence only indirectly affects IHT – only determining perhaps whether a person is ‘deemed domiciled’ for IHT purposes


    An overview of the SRT

    The SRT has created a lot of criticism.

    The rules can be quite complex. However, modern life is very complex. This contrasts with the case law (on which cases were being previously being determined) was decades, and in some cases centuries, old. Where, under this old case law international business involved time consuming and expensive journeys overseas, it is now exceedingly easy to travel to far flung countries.

    What the SRT aims to do is set out are a number of objective tests. Even where the application of these test can be quite complex, If one, based on the facts, can fall the ‘right side of the line’ then one can plan with certainty that one is non-UK resident.

    Where one can obtain certainty, then this must be an improvement on the old state of affairs.

    The ‘SRT Roadmap’


    The SRT can be thought of as a road map. However, it is a roadmap to a destination that nobody know at the outset.

    The first stage is to determine whether one satisfies the ‘Automatic Overseas’ tests (“AO Tests”). If one does qualify as being ‘automatically overseas’ then, unsurprisingly, one is non-UK resident. One can consider the SRT journey over at this point.

    If one does not meet one of the AO Tests then you are moved on the next leg of the journey. This step will determine whether one satisfies the Automatic UK Tests (“AUK Tests”). If one of the tests is met then the individual is UK resident.

    If one has not met either of the above tests, then the journey continues on to a third and final leg.

    This involves considering whether one has ‘sufficient ties’ to the UK. The sufficient ties test is essentially a ‘day counting’ exercise. The rule of thumb is that the more ‘ties’ one has to the UK then the less days one can spend in the UK without becoming UK resident.

    These thresholds differ depending on whether you are trying to ‘leave’ the UK or are a ‘visitor’.

    The Automatic Overseas (AO) Tests


    Technically, the legislation sets out five tests. However, from a practical perspective, there are really two tests here – one totting up days in the UK and the other identifying whether one works abroad on a full time basis.


    As eluded to above, the day count test will differ depending on whether we are talking about someone leaving the UK (“Leaver”) or someone coming to the UK (“Visitor”):

    • A Visitor is automatically non-UK resident if his days in the UK for the tax year are less than 46;
    • A Leaver presents a slightly more complex position. The general rule is that he will be non-UK resident if his days in the UK number less than 16. However, in certain circumstances single day visits to the UK (i.e. no presence at midnight) can count towards the days.

    Full time work abroad

    In the pre SRT days, this was often the most certain method of becoming non-UK resident. It is good to see that this remains in a relatively unsettled form.

    However, the test is slightly more complex than one might imagine – largely as a result of the second part of the test where one is determining whether the overseas work is full time or not.

    First of all, the individual must meet a ‘threshold’ condition. This requires the following:

    • The number of midnights spent by the Individual in the UK to be less than 91; and
    • The number of days doing 3 hours of work or more in the UK to be less than 31.

    Assuming the threshold test is met, we then need to go through a step by step calculation to see if the remainder of the test is satisfied.

    In the first instance one must work out the taxpayer’s ‘net overseas hours’. Essentially, this is total overseas hours worked by the individual in the year, less any ‘UK work hours’. UK work hours are only deducted if the person worked more than three hours in the UK on a particular day (a UK work day).

    A ‘reference period’ is then calculated by deducting the number of UK work days and days of holiday / sickness from 365 days.  This reference period is then divided by seven to give a ‘number of weeks’.

    The final step is then to divide the ‘net overseas hours’ by the ‘number of weeks’.

    If the result of this rather laborious calculation results in 35 or more then the test is met.


    That summarises the position under the ‘automatically overseas test’. If one meets one of the tests then there is no need to continue. However, if one does not, then it is necessary to consider the ‘Automatic UK resident’ and the ‘Sufficient ties’ tests.