The statutory residence test (SRT) applies from 6 April 2013 and it is HMRC's objective that the new legislation will make it easier to determine whether an individual is UK resident or not. While most taxpayers will have greater certainty, the new legislation is extremely prescriptive and complicated in certain areas, so great care is needed to understand what action is needed to ensure a residency position is not inadvertently compromised.
Individuals familiar with counting days in the UK by reference to presence at midnight may need to take on additional record keeping. For instance, some 'leavers' will need to record days of presence in the UK where the visit does not span midnight in order to ensure they do not exceed the permissible 30 days maximum under anti-avoidance legislation.
The new rules can also require a record of days spent elsewhere in the world. Under one test, if a UK 'leaver' has spent more days in the UK than any other country during the tax year, then this will count as a tie to the UK. Therefore a daily diary should be maintained to keep a record of where every night is spent.
An individual may need to maintain a day-by-day record of occupancy of their UK and overseas homes, where they are 'present' for any length of time (i.e. not necessarily only if staying overnight). In the case of taxpayers who may be automatically UK resident, a 91 day period is examined to see whether the individual has his 'only' home in the UK. Crucially, only 30 days in that period have to fall within a tax year for him to be UK resident if various other conditions are met.
Detailed information is also needed in respect of working hours for those taxpayers claiming a residency status in whole or in part on the basis of where they work full-time. They will need to record the amount of work carried out on a daily basis overseas or in the UK, as appropriate. For these purposes more than three hours of work qualifies as a 'work day'. Records are also required where there have been any breaks from work and why these breaks arose, such as annual holiday or sickness.
Even if an individual is treated as UK resident under the new rules there is scope to 'split' the tax year in some cases when arriving in, or leaving the UK, to reduce tax otherwise payable. Double taxation agreements may also need to be consulted.
The detail of the new SRT rules can be torturous. The level of record-keeping necessary will depend on a person's particular circumstances in matters of days spent in the UK, occupancy of homes around the world and working patterns. It is preferable to discuss as soon as possible with your usual Smith & Williamson contact which matters require particular vigilance. In some circumstances, the keeping of detailed daily records is the only way to demonstrate the facts to support a particular residency position.
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.