UK: One Year Delay For New UK Statutory Residence Test

Last Updated: 5 January 2012
Article by Piers Master

The Government's plan to introduce a new statutory residence test has been delayed by one year. Originally the new test was to have been effective from 6 April 2012. However, Exchequer Secretary to the Treasury, David Gauke, announced on 6 December 2011 that, in order to give the Government more time "to consult thoroughly on the detail of these changes well in advance of implementation", the new law is now set to come into force from 6 April 2013.

Tax practitioners and their clients have long been pressing for a statutory test of UK residence to replace the existing complex rules. The announcement by the UK Government in their March 2011 Budget that they would be introducing a statutory test of UK residence was therefore welcomed by tax advisers and their clients. It held out the promise of clarity in an important area of UK law which is currently subject to significant uncertainty.

The Government's consultation document on the new statutory residence test was duly published in June 2011. The document set out how the test would work and sought the views of practitioners and others on certain aspects of the proposed new test.

Although the outline of the new test as set out in the June 2011 consultation document seemed to be broadly workable and to achieve the desired clarity and simplification, there were also some "wrinkles" with the new test that need to be "ironed out". Charles Russell along with many other advisers responded to the consultation paper, indicating how the proposed statutory residence test could be improved. At the same time, in his announcement of 6 December 2011 David Gauke has stated that "the Government is committed to the form of the statutory residence test outlined in the consultation." On this basis it is unlikely that there will be any significant change to the proposed test as set out in the June 2011 consultation document.

Although the one year delay is disappointing, if it means that we will have a clearer and more workable test for the long-term then this is likely to be worth waiting for.

What does the delay mean in practice?

  • The existing rules continue for one further year (until 5 April 2013). The following are examples of situations where caution must be exercised, at least until enactment of the new test.
  • It will continue to be very difficult for a UK resident individual to leave the UK and become validly non-UK resident while retaining any significant links with the UK, unless he/she is going abroad on a full time contract of employment which will last for at least one complete tax year.
  • It will continue to be necessary for those visiting the UK from abroad to calculate their presence in the UK on the basis of presence in the UK averaged over three tax years (no more than an average of 90 days per tax year, and no more than 182 days in any one tax year).
  • Individuals wishing to increase their links with the UK and remain non-UK tax resident also need to be careful to ensure that they do not accidentally become UK tax resident by arriving in the UK for a purpose which will mean they will remain in the UK for at least three years.
  • Expatriates working outside the UK under the "full time contract of employment abroad" route will have to be careful to ensure that any work undertaken in the UK remains fully "incidental" to their employment abroad. 10 days' work in the UK will generally be presumed to be "incidental", but HMRC will look more carefully at greater periods of work done in the UK.


  • A person's UK income tax and capital gains tax liabilities are partly dependent on his/her UK residence status.
  • However, it can be very difficult to determine a person's UK residence status, especially if his/her circumstances are complex. There is currently no general statutory test of UK residence, which therefore has to be determined in accordance with case-law and HMRC guidance. The case law is extensive and often unclear. The guidance is not robust and often contradicts the case-law. In view of these difficulties practitioners have been calling for a statutory residence test for many years. The uncertainty arises in part from the fact that a person's residence status is governed by a mixture of complex case-law and HM Revenue and Customs ("HMRC") guidance (now known as HMRC6 and previously known as IR20). The problem is compounded by the fact that the guidance and the case-law are to some extent inconsistent with each other.
  • The recent high profile case of Gaines-Cooper, recently decided by the Supreme Court, has illustrated the problems arising from lack of a clear, statutory residence test. In Gaines-Cooper the court interpreted an earlier edition of the HMRC residence guidance as requiring that an individual leaving the UK must establish a "distinct break" (or, at the very least, a significant "loosening of ties") even though this was not an explicit requirement of the guidance.
  • The launch in June 2011 of a consultation into a proposed statutory residence test, originally intended to take effect from 6 April 2012, was therefore welcomed by practitioners and taxpayers alike. In view of the delay in implementing the test, the response to the consultation will now be published around Budget 2012 together with a further consultation on policy detail and draft legislation.
  • In broad outline the proposed test as it currently stands depends on categorising people as either "arrivers" (who have been non-UK resident) or "leavers" (who have been UK resident in at least one of the previous three tax years). It is more difficult to establish non-UK residence status if you are a leaver.
  • In more straightforward cases it will be possible to determine a person's UK residence status based simply on whether they are an arriver or leaver and on the number of days they spend here in the tax year in question. In some cases where the person works would also be relevant.
  • In more complex cases a person's residence will be determined on a combination of (a) whether they are an arriver or leaver (b) how many days they spend in the UK in the relevant tax year and (c) how many other factors (such as having a home here) apply in addition.
  • One of the problems with the new residence test relates to the issue of deciding whether a person is an arriver or leaver. This is because under the statutory test in its originally proposed form this would require looking back for 3 years and so having to apply the old rules for those 3 years. A transitional rule is therefore needed that avoids this. It is essential that this and other problems with the new test are ironed out before it comes into force.

Further reading

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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