The new statutory residence test (SRT) for the UK has been finalised by Parliament and applies from 6th April 2013. The SRT embraces automatic tests to establish whether an expatriate's status will be labelled 'non-residence' or 'residence' for tax purposes. If you satisfy any of the automatic tests then you have certainty on your position for that tax year. Where none of the automatic tests are satisfied, the situtation becomes more complicated and requires your 'ties' to the UK to be identified.
Step 1 – Automatic non-UK residence tests
Check to see if you satisfy any of these tests for being automatically resident outside the UK for any particular tax year.
- If you have been UK resident in any of the three previous tax years, then you are automatically non-UK resident if you spend less than 16 days in the UK in the tax year.
- If you have been non-UK resident for the three previous tax years and spend 45 days or less in the UK in the tax year then you are automatically non-UK resident.
- If you are leaving the UK to take up a full time job abroad, providing you have no breaks in employment of 31 days or more, and do not spend more than 91 days back in the UK (of which fewer than 31 days are spent working in the UK for more than 3 hours) then you are automatically non-UK resident.
- Special rules apply if you die during the tax year.
Step 2 – Automatic UK residence tests
If the tests for automatic non-UK residence are not met, you then apply your circumstances to test for automatic UK residence. This will be met:
- If you spend 183 days or more in the UK in the tax year then you are automatically UK resident
- If you have a home in the UK for more than 90 days, and you spend any time at all there on at least 30 days in the tax year, and while you have your UK home there is a period of 91 days, at least one day of which falls within the tax year when you either have no home overseas, or you have a home overseas but you are present there on fewer than 30 days in the tax year, then you are automatically UK resident.
- If you work full time in the UK for 365 days with no significant breaks (at least 31 days) and all or part of the 365 days falls within the tax year, and more than 75% of the days in the tax year in which you do more than 3 hours work are in the UK, then you are automatically UK resident.
- Special rules apply if you die during the tax year.
Step 3 – Determine connecting ties to the UK
If the automatic tests are inconclusive in determining your residence, your ties to the UK are examined. The connecting factors examined for each tax year are:
- Family Tie - if your spouse or civil partner (from whom you are not separated), your cohabitant, or your child under the age of 18 is UK resident in the tax year.
- Accommodation Tie - if you have a place to live in the UK which is available for at least 91 days continuously during the tax year and you spend at least one night there.
- Work Tie - if you work in the UK for at least 40 days in the tax year (working more than 3 hours per day).
- 90 Day Tie - if you spent more than 90 days in the UK in either or both the two previous tax years.
- Country Tie - if in the tax year you are present at midnight in the UK on more days than in any other country (only applies if you have been UK resident in any of the three previous tax years).
Each of these ties has peculiarities on its interpretation and application. For example, the availability of accommodation in the UK is different to having a house in the UK. Minor children who are in the UK for education are ignored for the purposes of the family tie providing the child spends fewer than 21 days in the UK outside of term time. It is important to take advice to correctly determine your connecting ties as they impact on your residence status.
Step 4 – Consider your residence for the previous three tax years
The SRT legislation permits those who have not been UK resident in any of the three previous tax years to spend more days in the UK before being classed as UK resident. It is therefore important to determine your UK residence history. To do so, you must apply the residence rules which applied in those earlier tax years. For tax years before 2013/14 it is the old rules which apply and not the new SRT – but you can elect for the SRT to apply to these tax years.
Step 5 – Maximum days in the UK before being UK resident
Based on the number of days in which you are in the UK in a particular tax year, the SRT legislation sets out how many ties would make you UK resident. Of more use is to identify your connecting ties, which then determines the number of days you can spend in the UK before becoming UK resident.
If you have been UK resident in any of the three previous tax years then the maximum number of days you can spend in the UK in a tax year without being UK resident is:
- Number of ties Maximum days in UK before being UK resident
- At least 415
- 3 45
- 2 90
- 1 119
If you have not been UK resident in any of the three previous tax years then the maximum number of days you can spend in the UK in a tax year and still be non-UK resident is:
- Number of tiesMaximum days in UK before being UK resident
- All 4* 45
- 3 90
- 2 120
- 1 182
*In these circumstances the country tie is not relevant so the maximum number of ties is 4.
The automatic non-UK residence tests give certainty to expats who fulfil the criteria to be automatically non-UK resident.
If you do not satisfy the automatic non-UK residence tests, it is essential to correctly identify your connecting ties to the UK. You should review your ties each tax year and when circumstances change during a tax year, and where appropriate, seek to reduce UK connecting factors. Given the peculiarities in the legislation on the application of the ties, advice should be taken on your position where there is any uncertainty over whether particular ties are applicable to you.
This article appeared on www.expatmoneychannel.com