The current test of whether a person has become UK resident, or has shed UK residence, has been the subject of widespread criticism in recent years, both on the grounds of uncertainty and because it was alleged that HMRC had ‘moved the goal posts’. A Consultation Paper has now been published, giving details and seeking comments on a new, statutory, test.

The proposed test is not based on simple day counting, as some may have hoped, but aims to give a straightforward answer in each case based on a combination of :

  • the number of days an individual spends in the UK; and
  • the number of factors they have connecting them with the UK (basically, family, home, certain kinds of work in the UK, and residence status in previous years).

It also sets out explicitly what had often been the case in practice anyway: that it will be harder for someone who has been UK resident to shed that residence than it will be for someone who has not been resident to become resident – in other words, the scales are weighted in favour of HMRC.

While the new test aims to catch the essence of the old, there is no suggestion that it will necessarily produce identical results in each individual case. At the extremes of ‘obviously resident’ and ‘obviously not resident’ it might be surprising if applying the new test instead of the old would produce a change in residence status. But for the majority of individuals who fall in between these two extremes, advice will be needed to be sure that leaving their lifestyle unaltered will not produce a different, and potentially damaging, answer to the question: ‘are you tax resident?’. Particularly at risk may be those (whether arriving or leaving) who have a home and/or family in the UK, and also those who leave the UK but have a highly mobile lifestyle.

The proposal is that the new rules will be effective from the tax year 2012/13 – after 5 April 2012. But a number of individuals will need to get their affairs in order in the current tax year, so that they do not offend at any time in the tax year 2012/13. In some cases this may involve lifestyle changes which will take time to accept and implement, so the sooner planning starts, the better.