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Introduction – statutory residence test
Residence has a huge bearing on the tax position of a person for UK purposes.
Taxpayers who are resident in the UK in a tax year are taxable on their worldwide income and capital gains arising in that year, while taxpayers who are NOT resident in the UK in a tax year are only taxable on their UK income arising in that year (their foreign income is not taxed) – subject to limited exceptions (currently directly held UK residential property and, from April 2019, all UK real estate directly or indirectly held by non-residents), non-residents do not pay capital gains tax.
With this in mind, it seems preposterous that there was no real statutory definition of residence until the introduction of the Statutory Residence Test (“SRT”) with effect from April 2013.
This replaces the patchwork regime of case law.
There are now three tests which determine whether an individual is to be treated as UK resident or non-resident in a tax year. The tests operate as a ‘waterfall’. If one satisfies the first test then there is no need to look at the other tests. It is only when one fails a test that reference to the next test is required.
The three tests are:
Usually, an individual will be either resident or non-resident for a relevant tax year.
However, in certain cases, an individual may become UK resident (or non-UK resident) part way through a tax year. This is referred to as ‘Split Year Treatment’. Generally this will be relevant where someone leaves the UK, or comes to the UK, to work.
Anti-avoidance rules may also apply where an individual is non-resident for temporary purposes.
Automatic overseas tests
If any of these tests are satisfied then the individual isconclusivelynon-UK resident for the tax year.
The Automatic (UK) Residence Test
An individual will be conclusively resident in the UK for the tax year if they meet any of the following conditions, namely:
If an individual has met any of the automatic overseas tests, he is automatically not resident in the UK, even if he also meets one of the automatic residence tests. Therefore, in cases where both tests apply, the automatic overseas test takes priority.
The Sufficient Ties Test
Some individuals will not meet any of the automatic overseas tests or any of the automatic residence tests. These will most commonly be individuals who spend between 46 days and 182 days in the UK.
For this population, their residence status will be determined by the “sufficient ties” test.
The “sufficient ties” test considers both the number of days spent in the UK and the extent of the individual’s “connection” with the UK.
There are 5 “ties” or “connection factors” laid out in the legislation namely:
The above connection factors are combined with days spent in the UK to determine residence status.
Where the “sufficient ties” test applies, the legislation contains two tables to determine residence status.
The first Table is relevant for individuals who have been resident in the UK in one or more of the three preceding tax years. These people are referred to as “Leavers”.
The second Table is relevant for individuals who have not been resident in the UK in any of the three preceding tax years. These people are referred to as “Arrivers”.
All individuals for whom the sufficient ties test applies will fall within one or other of
these Tables (but never both).
Table for “Leavers”
|Days spent in the UK in the tax year||Number of ties required to establish residence|
|Fewer than 16||Always non-resident|
|16 – 45 days||At least four|
|46 – 90 days||At least three|
|91 – 120 days||At least two|
|121 – 182 days||At least one|
Table for “Arrivers”
|Days spent in the UK in thetax year||Number of ties required to establish residence|
|Fewer than 46||Always non-resident|
|46 – 90 days||All four|
|91 – 120 days||At least three|
|121 – 182 days||At least two|
|183 days or more Always resident||183 days or more Always resident|
Conclusion – statutory residence test
The statutory residence test is not always easy to apply. However, what it perhaps lacks in simplicity it does, generally speaking, provide greater certainty than under the old rules. Of course, there are exceptions.
If you have any queries regarding the statutory residence test or international tax matters more generally, then please do get in touch.
Statutory residence test was last updated on 10 January 2019