UK: The Proposed Statutory Residence Test For Individuals

HMRC published a consultation document proposing a statutory residence test (SRT) on 17 June 2011.

The residence status of individuals, which is crucial to determining liability to UK tax has, for many years, been governed by rather dated case law together with the pronouncements of HMRC in leaflet IR20 (recently replaced by HMRC6). Recent litigation, such as that in the Gaines-Cooper case has demonstrated that elements of IR20 have been viewed in different ways by HMRC on the one hand and taxpayers and their advisers on the other, and that the current rules can be very hard to apply in practice.

The purpose of an SRT would be to provide greater certainty which, it is believed, should increase the attractiveness of the UK to potential overseas investors.

Paragraph 1.7 of the consultation document states:

"The Government is...committed to introducing a statutory test that is transparent, objective and simple to use."

Consultation closed in September 2011 and the original intention was that the final legislation should be contained in Finance Bill 2012. In December 2011 it was announced that due to the detailed issues raised in responses to the consultation the Government had decided that it would legislate the SRT in Finance Bill 2013 to take effect from April 2013, rather than April 2012.

This article is based upon the proposals contained in the consultation document and, given the protracted nature of the process, it should be noted that the final legislation, assuming that it is enacted in Finance Act 2013, may well be different. It will be essential, of course, to take advice based upon the legislation as actually enacted.

How the SRT will work

The SRT will fall into three parts; Part A will contain conclusive non-residence factors, Part B will contain conclusive residence factors, and Part C will contain other connection factors and day counting rules that will only need to be considered by those whose residence status is not determined by Part A or Part B.

Part A of the test will conclusively determine that an individual is not resident in the UK for a tax year if they fall under any of the following conditions:

  • were not resident in the UK in all of the previous three tax years and they are present in the UK for fewer than 45 days in the current tax year;
  • 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 10 days in the current tax year; or
  • leave the UK to carry out full-time work abroad, provided they are present in the UK for fewer than 90 days in the tax year and no more than 20 days are spent working in the UK in the tax year.

Provided that Part A of the SRT does not apply, an individual will be conclusively resident under Part B if they meet any of the following conditions:

  • are present in the UK for 183 days or more in a tax year;
  • have only one home and that home is in the UK (or have two or more homes and all of these are in the UK); or
  • carry out full-time work in the UK.

In the unlikely event that both Part A and Part B are satisfied for a particular year, for example, if an individual only has one home which is in the UK but spends very few days in the UK, then Part A will take precedence and the individual will not be resident in the UK in that year.

Part C would only apply to those individuals whose status was not determined by Parts A or B. Under Part C an individual would need to compare the number of days they spend in the UK against a number of "connection factors".

The connection factors are:

1. Family in the UK

2. Accommodation in the UK

3. Substantive work in the UK

4. UK presence in previous year

5. More time in the UK than in other countries

The connection factors would be combined with days spent in the UK into a "scale" to determine whether or not an individual is resident. The suggestion is that there should be separate scales for arrivers and leavers to reflect the Government's view that it should be harder for leavers to relinquish residence.

If an individual was not resident in all of the three tax years preceding the year under consideration then in broad terms connection factors 1 to 4 above may be relevant to their residence status.

The way in which the connection factors would be combined with days spent in the UK would be as follows:

Days in UK

Impact of connection factors

Fewer than 45 days

Always non-resident

45 – 89 days

Resident if 4 factors

90 – 119 days

Resident if 3 factors or more

120 – 182 days

Resident if 2 factors or more

183 days or more

Always resident

If the individual was resident in one or more of the three tax years immediately preceding the tax year under consideration then all five of the connection factors come into play with the following results:

Days in UK

Impact of connection factors

Fewer than 10 days

Always non-resident

10 – 44 days

Resident if 4 factors or more

45 – 89 days

Resident if 3 factors or more

90 – 119 days

Resident if 2 factors or more

120 – 182 days

Resident if 1 factor or more

183 days or more

Always resident

Other issues

It is proposed that split year treatment should continue to be available in certain circumstances.

It is also proposed that anti-avoidance provisions should be introduced; the key objective appears to be to deter individuals from becoming non-resident for short periods in order to avoid a liability to UK tax on expected income.


The proposed SRT appears to be an improvement on the current position which has complex and somewhat uncertain rules. It is to be hoped that once things settle down it will be relatively simple to apply the tests and that clarity will be available in most cases.

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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