UK: Finance Bill 2013 - Statutory Definition Of Tax Residence

Last Updated: 26 April 2013
Article by Smith & Williamson

In his March 2011 Budget statement the Chancellor of the Exchequer announced consultation on the introduction of a statutory definition of tax residence with a view to legislation taking effect from 6 April 2012. This legislation was deferred in late 2011 and there has been further consultation throughout 2012.

Revised draft legislation was first published in December 2012 and has been included in the Finance Bill 2013. The rules are expected to take effect from 6 April 2013.

Residence is a fundamental concept as it defines the scope of an individual's UK tax liability. There is currently no full legal definition of tax residence, meaning that the rules are unclear, complicated and seen as subjective. This creates uncertainty for individuals regarding their residence status and that uncertainty is a deterrent to businesses and individuals considering investing in the UK. The intention behind the consultation was to ensure that clear objective tests are used to give certainty in the vast majority of cases.

Revised Statutory Residence Test (SRT)

The revised SRT is designed to provide simple, transparent and objective legislation to determine residence, taking into account the amount of time the individual spends in the UK and, in some cases, the connections that they have with the UK. There is a distinction between leavers (those who were resident in one or more of the previous three tax years) and arrivers (those who were not UK resident in all of the previous three tax years).

The test is designed such that it is harder for leavers to relinquish residence than it is for new arrivers to acquire it, following the principle that residence should have an adhesive nature.

The revised SRT consists of three parts.

Automatic Overseas Test – If any of the conditions are met, the individual is non- resident for the year and there is no need to refer to the further tests. If this test does not apply, you move on to the next test.

Automatic UK Test - If any of the conditions are met, the individual is resident for the year and there is no need to refer to the further test. If this test does not apply, you move on to the next test.

Sufficient UK Ties Test - Day counts and various connection factors are considered to determine residency status.

Automatic Overseas Test

This test aims to provide certainty to taxpayers as to their non-residence status without the need to take into account any connections they have with the UK. This conclusively determines that an individual is non-resident in the UK for a tax year if they meet any of the following conditions, namely 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
  • 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
  • leave the UK to carry out full-time work abroad (employment or self-employment), provided they are present in the UK for fewer than 91 days in the tax year and fewer than 31 days are spent working in the UK in the tax year. On average they must spend at least 35 hours a week working overseas. Any day in which more than three hours of work are undertaken in the UK will count as a UK work day. Note that time spent travelling in the UK, as well as training in the UK, count for hours worked where employer-funded or the costs are tax deductible.

Further automatic overseas tests apply for the year of death. The deceased will not be UK resident for the tax year in which their death occurs, provided they spent fewer than 46 days in the UK during that tax year, and they were resident in the UK for tax purposes for neither of the two preceding tax years, or alternatively they were not resident in the UK for tax purposes in the preceding tax year, and the tax year before that was a split year.

Automatic UK Test

Many individuals spend the majority of their time in the UK or have their home and family life here. This test conclusively determines residence if the individual meets any of the following conditions, namely they:

  • are present in the UK for at least 183 days in a tax year; or
  • have a home in the UK for more than 90 days, they spend at least 30 separate days (even for a short time) in that home in the tax year and, while the individual has that UK home, there is a period of 91 consecutive days throughout which they do not have an overseas home or, if they have one or more overseas homes, they spend fewer than 30 separate days in each of them in the tax year. This condition has been modified so that one does not need to consider whether a place qualifies as a 'home' unless 30 separate days or more have been spent there in the tax year; or
  • work full-time work in the UK for a period of 365 days and during that period there have been no significant breaks where for 31 days or more there are no days when more than three hours work are done in the UK. In addition during the tax year more than 75% of the total days for which more than three hours work are done are days when more than three hours of work are done in the UK.

The above three tests can apply to deceased individuals. Additionally, there is a fourth automatic UK test for the year of death where the deceased individual was UK resident in each of the three preceding tax years by virtue of meeting one of the automatic UK residence tests, and (assuming they were not resident in the UK for the tax year of death and the preceding year would not have been a split year) they had a home in the UK when they died.

HMRC has published detailed guidance on how it will interpret these provisions at www.hmrc.gov.uk/budget-updates/11Dec12/stat-res-test-note.pdf

Sufficient UK Ties Test: other ties and day counting

This will generally apply to individuals whose circumstances are more complex. The more UK ties that an individual has the less time they can spend in the UK if they are to remain non-resident. The following ties are taken into account:

  • UK resident family;
  • accessible accommodation in the UK;
  • substantive work in the UK (employment or self-employment);
  • UK presence in the previous tax years (spending more than 90 days in the UK in either of the previous two tax years);
  • more time in the UK than in any other single country (this tie is not applicable to arrivers).

The ties are linked with the day count as follows:

Arrivers

Days spent in UK

Impact of ties on residence status

Fewer than 46 days

Always non-resident

46-90 days

Resident if 4 ties (otherwise not resident)

91-120 days

Resident if 3 or more ties (otherwise not resident)

121-182 days

Resident if 2 or more ties (otherwise not resident)

183 days or more

Always resident

Leavers

Days spent in UK

Impact of ties on residence status

Fewer than 16 days

Always non-resident

16 - 45 days

Resident if 4 or more ties (otherwise not resident)

46-90 days

Resident if 3 or more ties (otherwise not resident)

91-120 days

Resident if 2 or more ties (otherwise not resident)

121-182 days

Resident if 1 or more ties (otherwise not resident)

183 days or more

Always resident

An individual has a UK resident family in the tax year if either the individual's spouse, civil partner or common law equivalent is resident in the UK or the individual has UK resident children under 18 with whom he spends time for 61 or more days in the UK. A child will not be resident for these purposes if their time in the UK is spent at an educational establishment and they spend no more than 20 days outside term time in the UK. Term time has now been defined to include half terms and other breaks within the school term.

An individual will have accessible UK accommodation if:

  • the individual has a place to live in the UK;
  • it is available to be used by them for a continuous period of at least 91 days in a tax year; and
  • the individual spends at least one night in that place during the tax year.

All accommodation will be treated in the same way regardless of the form of tenure or occupancy, including all types of employer provided accommodation. If the individual's spouse, partner or minor child has accommodation in the UK it is only treated as available to the individual if they actually spend one night there in the tax year.

There will be an exemption for occupancy of property held by specified other relatives unless the individual spends more than 15 nights there during the tax year. In addition HMRC has said that accommodation will not be treated as 'available' unless an individual would really be able to stay there for 91 days and so an 'open invite' to stay should not count.

Where there is a gap of fewer than 16 days between periods in the tax year in which a particular place is available to the individual, that place will continue to be treated as if it were available to the individual during the gap. Hence hotel accommodation that is frequently used on a regular basis where there is not a gap between visits of more than 16 days over a 91 day period can give rise to an accommodation tie.

An individual will perform substantive work in the UK if they work in the UK for at least 40 days at some time in the tax year. Again a work day is where the individual does three hours or more of work in the UK.

Split Years

New rules will replace current extra-statutory concessions to treat a tax year as being split into periods of residence and non-residence if a person:

  • loses UK residence by virtue of working full-time abroad, or as a result of their partner working full-time abroad;
  • establishes their normal home in a country outside the UK within 6 months of departure and does not come back to the UK for more than 15 days in that tax year;
  • becomes resident in the UK by virtue of their only home being in the UK;
  • becomes resident by starting full-time working in the UK, or as a result of their partner working full-time in the UK; acquires a UK home during the year and remains UK resident the following year.

Note that a tax year will not be treated as split where an individual's residence status changes due to a variation in the number of ties under the Sufficient UK Ties Test.

Whilst foreign income and any capital gains arising in that part of the year prior to the individual becoming UK resident will not be taxed, capital distributions from offshore trusts will be taxed on a pro-rata basis by reference to the non-resident and resident periods. Hence part of a capital distribution received prior to arriving in the UK may be taxable under the split year rules.

Exceptional Circumstances

Up to 60 days may be spent in the UK in a tax year as a result of national or local emergencies such as war, civil unrest or natural disasters or sudden or life-threatening illness or injury. This will apply for all day counting tests including the 183 day test for automatic UK residence which represents a relaxation of the current position. Exceptional circumstances would not seem to include strikes, fog delays and other transport issues although HMRC guidance is awaited.

Anti-avoidance Provisions

There are anti-avoidance provisions similar to the one currently applicable to CGT. These will counteract the risk of individuals creating artificial short periods of non-residence during which they receive a large amount of income which previously accrued during periods of UK residence free of UK tax, then bringing the income back into the UK tax- free. In particular, this is designed to counter distributions from closely controlled companies and chargeable event gains.

There will also be provisions targeted at individuals who have been UK resident in one or more of the three previous tax years, have at least three ties for the current tax year and they spend more than 30 days present in the UK at some point in the day but not at midnight. Where this is the case any such days in excess of 30 spent present in the UK but not at midnight will be added to the other days used in the Sufficient Ties Test to determine residence.

Transitional Rules

There is a transitional rule which applies only for those parts of the Tests where the individual needs to know what their residence status was in one or more of the three years prior to the introduction of the Tests. Taxpayers will be able to elect that the new rules will apply to earlier years solely in order for them to determine their residence in future years under the SRT.

Abolition of Ordinary Residence

The concept of ordinary residence for tax purposes will be abolished. However Overseas Workday Relief (OWR) will be put on a statutory footing and apply only to non-UK domiciled individuals after 6 April 2013. The new rules have been widened to include those arriving in the UK who had not been UK resident in the three previous tax years even if they intend to stay longer than three years. OWR will apply to the tax year of arrival and the following two tax years where the overseas earnings are not remitted to the UK.

Conclusion

Consultation resulted in tweaks to the SRT and clarification on a number of points. However the rules are still complex and will require a great deal of record keeping from the individual to support their residence status in many situations.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Smith & Williamson
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Smith & Williamson
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions