Our earlier updates have commented on the proposed UK statutory residence test.  This is being introduced by the Government with the aim of giving more certainty to individuals on the question of whether or not they are resident in the UK.  The Government has recently published its response to the consultation on the suggested provisions which took place in summer 2011.  The provisions remain relatively unscathed, save for a small number of amendments and a tightening of related rules.

The main amendment is a relaxation of the number of days that individuals can remain here without falling foul of one of the tests which determine them as resident in the UK.  It is now proposed that, if an individual remains here for no more than 15 days in any tax year (as opposed to no more than nine days as previously proposed), he or she will be considered as conclusively non-resident here.  Similarly, individuals who have not been resident here in the three previous tax years will be able to remain here for no more than 45 days and remain non-resident (as opposed to no more than 44 days as previously proposed) - a not so generous extension.

Provisions have been introduced, however, to deal with the year of death.  This is to avoid the situation where an individual has been present for fewer than 16 days here in the tax year of death and there is an attempt to consider them as taxable as non-resident in that year.

As part of the response, the Government has also taken the opportunity to tighten the rules concerning those who are ‘temporarily non-resident’ here.  Such persons are defined as those who are non-resident in the UK for a period of less than five complete tax years and, before their departure, they were resident here for more than four of the previous seven tax years.

If a UK resident individual is planning to sell an asset or is due non-UK income then it is a common tax planning technique to make sure they are non-resident at the relevant point (and thereby hope not to be subject to the relevant UK tax).  The individual, however, may not want to remain non-resident for more than five years and will often fall into the definition of being temporarily non-resident.

Further to the present rules, only certain capital gains made and types of income received in the non-resident period are brought back into account and taxed on the individual in the year of their return to the UK.  It is proposed that the categories of income to which these rules apply are to be expanded to further limit the scope for such planning.

It is planned that the rules will come into effect on 6 April 2013.