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UK Tax & The Statutory Residence Test

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

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:

  1. Automatic overseas test: if this test is satisfied then the taxpayer is conclusively non-resident;
  2. Automatic residence test: if this test is satisfied then the taxpayer is conclusively UK resident;
  3. A sufficient ties test: if neither of the above tests are satisfied then one resorts to a day-counting test

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.

  • They were resident in the UK in one or more of the previous three tax years and they are present in the UK for fewer than 16 days in the current tax year; or 
  • They were not resident in the UK in all of the previous three tax years and they are present in the UK for fewer than 46 days in the current tax year; or 
  • They satisfy the “work abroad” condition. Broadly the “work abroad” condition is met where the individual works abroad for an average of at least 35 hours a week for the whole of the tax year, and is present in the UK for fewer than 91 days in the tax year of which fewer than 31 days are spent working in the UK.

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:

  • They are present in the UK for 183 days or more in a tax year; or 
  • They have a “home” in the UK; or 
  • They carry out “full-time work” in the UK for a period of at least 365 days.

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:

  1. Family – a “family” tie is created if either:
  • The individual’s spouse/civil partner/common-law partner are resident in the UK; or
  • A minor child (under 18) of the individual is resident in the UK and the individual sees that child on at least 61 days in the tax year. 
  • Accommodation – an “accommodation” tie is created if:
  • The individual has a place to live in the UK which is available to be used by them for a continuous period of at least 91 days; and
  • He/she spends at least one night there during the tax year (or 16 nights in the case where the accommodation is that of a close relative, being a parent, grandparent, sibling, child or grandchild). 
  • Work – a “work” tie is created if the individual works for 40 days or more in the UK in the tax year. A workday is any day on which more than 3 hours work is carried out. 
  • UK presence (the “90-day tie”) – a “UK presence” tie is created if the individual spent more than 90 days in the UK in either of the previous two tax years. 
  • Country – a “country” tie is created if the individual spends more days in the UK in the tax year than in any other single country.

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 yearNumber 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 yearNumber 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 resident183 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

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