Whether an individual is tax resident in the United Kingdom in a given tax year is governed by the UK statutory residence test (SRT). If an individual is UK resident, the SRT also determines the date on which the individual's period of UK residence commences.
The default position is that if an individual becomes UK tax resident during a tax year, they will be treated as UK resident from the beginning of the tax year of their arrival (ie, from 6 April in that tax year). For example, an individual may move to the United Kingdom on 1 June, but they may be treated as tax resident from the preceding 6 April.
In some cases, however, "split-year" treatment applies, the effect of which is that the individual is treated as UK resident for most tax purposes from an alternative date: the tax year is split into a "non-UK resident period" and a "UK resident period". Split-year treatment is limited and will only apply if (at least) one of the following tests is met:
- the individual starts to have a home in the United Kingdom at some point in the tax year;
- the individual's UK home becomes their only home during the tax year;
- the individual commences full-time work in the United Kingdom;
- the individual ceases working full time overseas; or
- the individual's partner ceases working full time overseas.
It is important to stress that within each of the above tests, there is a set of strict criteria that must still be met. For example, if an individual starts to have a home in the United Kingdom halfway through the tax year, split-year treatment will only apply if the number of days that they have spent in the United Kingdom in the first half of the tax year is small enough for them to be non-UK resident for this period. The relevant number of days permitted in the purported non-UK resident period is calculated by reference to the number of "ties" that they have to the United Kingdom throughout the tax year.
Another point is that, even with split-year treatment, the UK resident period may not necessarily commence on the day that the individual actually moves to the United Kingdom. For example, it may commence on the day they acquire a UK property, sell an overseas property or commence work in the United Kingdom. In some cases, this may even result in the individual being resident from a date prior to the date that they consider their official "move" date.
Split-year treatment aside, there are also traps for the unaware in the SRT, in particular regarding the "full-time work in the UK" and "home in the UK" tests, which, if satisfied, will result in the individual being automatically UK tax resident. With respect to the full-time work in the UK test, in some cases, an individual may be treated under the SRT as commencing full-time work in the United Kingdom on a date prior to what they consider their full-time commencement date merely because they undertake a relatively small amount of work on an earlier date. If they undertake this earlier work on a date in the previous tax year, the consequences can be significant. With the "home in the UK test", a strict reading of the legislation may result in the individual becoming UK resident if they replace their overseas home and they do not spend a sufficient number of days at their former or new overseas home in the tax year. For example, if an individual who owns (and spends time at) a house in the United Kingdom replaces their overseas home at the beginning of June but fails to spend 30 days in that home between 6 April and the date on which he sells his overseas home (eg, because they are travelling), they could automatically be treated as UK resident.
It is therefore vital for an individual to seek professional advice on the application of the SRT at the earliest opportunity in order to ensure that their affairs can be put in place prior to the commencement of UK residence.
For further information on this topic please contact John FitzGerald at Forsters LLP by telephone (+44 20 7863 8333) or email ([email protected]). The Forsters LLP website can be accessed at www.forsters.co.uk.